Long-term care risk misperceptions
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Long‑term care risk misperceptions Martin Boyer1 · Philippe De Donder2 · Claude Fluet3 · Marie‑Louise Leroux4 · Pierre‑Carl Michaud1
Received: 24 May 2018 / Accepted: 12 November 2018 © The Geneva Association 2018
Abstract This paper reports survey evidence on long-term care (LTC) risk misperceptions and demand for long-term care insurance (LTCI) in Canada. We study three LTC risks: needing help with at least one activity of daily living, needing access to a nursing home, and living to the age of 85. We contrast subjective (stated) probabilities with objective (predicted) probabilities for these three dimensions, and define misperceptions as the differences between them. We first provide descriptive statistics about objective and subjective probabilities. We then analyse how risk misperceptions correlate with individual characteristics and how they affect intentions and actual purchase of LTCI. We find that although misperceptions significantly affect both intention to buy LTCI and actual purchase of LTCI, they cannot explain the low take-up rate of LTCI in our sample. Correcting simultaneously the perceptions of LTC risks on the three dimensions would increase LTCI take-up by at most one percentage point. Keywords Long-term care insurance puzzle · Disability · Misperceptions · Subjective probability
Electronic supplementary material The online version of this article (https://doi.org/10.1057/ s41288-018-00116-4) contains supplementary material, which is available to authorised users. * Marie‑Louise Leroux leroux.marie‑[email protected] 1
HEC Montréal, Montréal, Canada
2
ESG UQAM, Montréal, Canada
3
Université Laval, Montréal, QC, Canada
4
Department of Economics, Ecole des Sciences de Gestion (ESG), University of Québec at Montréal (UQAM), Case Postale 8888, Succursale Centre‑ville, Montréal, QC H3C 3P8, Canada
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M. Boyer et al.
Introduction According to the Canadian Life and Health Insurance Association (CLHIA), by the year 2036, 25% of the Canadian population will be over 65 years old, with almost one million people afflicted with dementia. This ageing trend is observed in all developed countries, and goes hand in hand with an increase in the number of elderly dependents who will likely be in need of costly long-term care (LTC) services.1 According to Brown and Finkelstein (2009), the probability that a 65-yearold will be in a nursing home at some point in life ranges from 35 to 50% in the U.S. This is likely to put additional financial pressure on households and ultimately on governments. For instance, in the U.S. in 2016, the average annual cost in a nursing home was around USD 82,000 for a semiprivate room and USD 92,000 for a private room.2 As for Canada, LTC costs and subsidies vary across provinces. For example, in Québec (one of the two provinces studied in this paper), the public system provides a basic service in public nursing homes (CHSLD). The programme is meanstested and the maximum fee is around CAD 20,000 a year. This could be considered to be quite low. Howe
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