Moral hazard and long-term care insurance
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Moral hazard and long‑term care insurance R. Tamara Konetzka1 · Daifeng He2 · Jing Dong3 · John A. Nyman4
Received: 20 November 2018 / Accepted: 17 December 2018 © The Geneva Association 2019
Abstract In private long-term care insurance markets, moral hazard is central to pricing and long-run robustness of the market, yet there is remarkably little evidence on the extent to which moral hazard is present in long-term care insurance. We use Health and Retirement Study data from 1996 to 2014 to assess moral hazard in nursing home and home care use in private long-term care insurance, employing a combination of propensity score matching and instrumental variables approaches. We find evidence of significant moral hazard in home care use and a potentially meaningful but noisy effect on nursing home use. Policymakers designing incentives to promote private long-term care insurance should consider the consequences of moral hazard. Keywords Moral hazard · Long-term care insurance · Ageing · Nursing homes · Home care
* R. Tamara Konetzka [email protected] 1
Department of Public Health Sciences and Department of Medicine, The University of Chicago Biological Sciences, University of Chicago, 5841 S. Maryland Ave., Room W255, MC2000, Chicago, IL 60637, USA
2
Swarthmore College, Swarthmore, PA, USA
3
IMPAQ International, Columbia, MD, USA
4
University of Minnesota, Minneapolis, MN, USA
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R. T. Konetzka et al.
Introduction In the U.S. the financing of long-term care will become increasingly challenging as the population ages and the prevalence of chronic conditions grows. Since the passage of prescription drug coverage for seniors, long-term care is arguably the single largest uninsured health expenditure risk facing the country. In 2016 the median monthly cost was over USD 7000 for nursing home care and USD 4000 for home-based care (Genworth Financial 2017), and only a small minority of individuals can finance an extended nursing home stay out of their own pockets (Bernard et al. 2009). Medicaid is the largest payer of longterm care by default, but with long-term care consuming more than a third of state Medicaid budgets (Eiken et al. 2016), states find this burden increasingly challenging. Other developed countries in Europe and Asia face similar challenges, with the population in many countries ageing at a faster pace than in the U.S. (Karlsson et al. 2007). Long-term care insurance (LTCI) is often posited as one solution to the financing challenge, because an increase in private responsibility could offset some of the public burden. However, only 13% of elderly individuals have LTCI in the U.S. (Konetzka 2014). In the presence of this fairly small private market, the U.S. government passed a national LTCI programme called Community Living Assistance Services and Supports Act (CLASS) as part of the Affordable Care Act in 2010. CLASS was intended to be a self-sustaining, premium-financed, government-administered national insurance programme for long-term care services but was repealed
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