Long-Term Care Insurance and the Family

I examine whether informal care by family members explains the limited demand for longterm care insurance. Motivated by evidence that the availability of potential informal caregivers
is correlated with lower insurance demand and that informal caregivers substitute for formal
care, I estimate a dynamic model of long-term care decisions between an elderly parent and her
adult child. The availability of informal care lowers the demand for insurance by 14 percentage
points overall. An insurance policy that compensates informal care can generate substantial
increases in insurance demand and family welfare, and decreases in Medicaid spending.