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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

Listed author(s):
  • Fels, Markus

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.

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File URL: https://www.econstor.eu/bitstream/10419/128642/1/84862033X.pdf
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Paper provided by Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering in its series Working Paper Series in Economics with number 84.

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Date of creation: 2016
Handle: RePEc:zbw:kitwps:84
Contact details of provider: Web page: http://www.wiwi.kit.edu/

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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.
  2. David M. Cutler, 1993. "Why Doesn't the Market Fully Insure Long-Term Care?," NBER Working Papers 4301, National Bureau of Economic Research, Inc.
  3. Anne Theisen Cramer & Gail A. Jensen, 2006. "Why Don't People Buy Long-Term-Care Insurance?," Journals of Gerontology: Series B, Gerontological Society of America, vol. 61(4), pages 185-193.
  4. Fels, Markus, 2015. "Mental accounting, access motives, and overinsurance," Working Paper Series in Economics 69, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
  5. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 98(3), pages 1083-1102, June.
  6. Yong Li & Gail A. Jensen, 2012. "Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(2), pages 220-237.
  7. Yong Li & Gail A. Jensen, 2012. "Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(2), pages 220-237.
  8. Jeffrey R. Brown & Amy Finkelstein, 2011. "Insuring Long-Term Care in the United States," Journal of Economic Perspectives, American Economic Association, vol. 25(4), pages 119-142, Fall.
  9. Jeffrey R. Brown & Amy Finkelstein, 2009. "The Private Market for Long-Term Care Insurance in the United States: A Review of the Evidence," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 5-29.
  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.
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