Effects of long-term care insurance on financial well-being
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Effects of long‑term care insurance on financial well‑being Jing Dong1 · Fabrice Smieliauskas2 · R. Tamara Konetzka2
Received: 24 May 2018 / Accepted: 5 November 2018 © The Geneva Association 2018
Abstract Although private long-term care insurance (LTCI) is often discussed as a potential solution to the need for long-term care financing in the U.S., there is little empirical evidence on the economic consequences of having LTCI. We use U.S. Health and Retirement Study data to examine how LTCI affects key financial outcomes of insured individuals. Using an instrumental variable approach to account for the endogeneity of LTCI purchase, we find that LTCI leads to consistently positive effects on assets, consistently negative effects on Medicaid and Food Stamp enrolment and parent–child financial transfers, and ambiguous effects on out-ofpocket medical payments. These results suggest that although private LTCI does not entirely protect insured individuals against large medical expenditure, it improves the general financial well-being of insured individuals, potentially by reducing Medicaid-related disincentives to asset accumulation, motivating individuals to save more and reduce intergenerational wealth transfers. Keywords Long-term care insurance · Financial protection · Asset accumulation · Instrumental variables
* Jing Dong [email protected] 1
IMPAQ International, Columbia, MD, USA
2
The University of Chicago, Chicago, IL, USA
Vol.:(0123456789)
J. Dong et al.
Introduction Long-term care (LTC) expenditure has become one of the largest financial risks faced by elderly people and their families in the U.S. (Brown and Finkelstein 2007) Although LTC is expensive,1 coverage for LTC under public insurance schemes is limited—Medicare2 covers only post-acute care up to 100 days, and Medicaid3 covers only individuals who have spent down most of their assets.4 On the other hand, only 13% of individuals aged 65 years and older have private long-term care insurance (LTCI) (Congressional Budget Office 2013). As a result, LTC financing in the U.S. relies heavily on out-of-pocket expenditure by individuals and their families until they spend down their assets and qualify for Medicaid. The high cost of formal LTC might also limit an individual’s choice of service: more than two-thirds of the most disabled seniors receive solely informal care, which might be inappropriate for individuals who need intensive services (Thompson 2004). To reduce individuals’ financial burden and curb government spending on LTC, policymakers have often considered private LTCI as one solution, and have implemented various programmes to stimulate the demand for private LTCI in the U.S.5 Private LTCI markets also exist in other countries such as France, Germany, the United Kingdom, and Canada, often as a supplement to public programmes. Purchase of private LTCI may not be broadly appealing to consumers for a variety of reasons, including the typical structure of the policies themselves, which usually limit benefits to a set dollar amount pe
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