Factors associated with purchase of long-term care insurance

Spending on long-term care (LTC) is projected to increase from $194 billion in 2004 (with 49% coming from Medicaid) to $540 billion in 2040. In response, efforts have been made to bolster the market for private long-term care insurance (LTCI) to reduce Medicaid spending. Private insurers want to understand what motivates people who purchase LTCI and how to expand the private market; consumers want to understand whether LTCI is an appropriate strategy for them to cover long-term care costs; and policymakers want to understand what the potential role of private LTCI is in terms of meeting future needs to fund LTC and what can be done to encourage purchase of LTCI. These papers aim to respond to these questions by reviewing sources of LTCI market failure and understanding the extent to which assets, income maintenance savings (savings that may set aside for 3 or more years), taste for insurance, and prior experience with a parent in nursing home care is associated with purchase of LTCI. Analysis of data from the 2004 Health and Retirement Study (HRS) shows that the most likely market of those for whom it might be worth purchasing LTCI is limited to approximately one-quarter of those over 50. Analyses were conducted within a target market of individuals (with $100,000 - $2 million in assets) who have medical insurance other than Medicaid, and are younger than 85. Logistic regression models were conducted with data from the HRS in 2000, 2002, and 2004. Data are weighted to represent the population of adults over 50 in the US as of 2004. Among those in the target market, individuals with a very high level of income maintenance savings (>/$100,000), who could presumably self-insure against all but the greatest risk of LTC; those with life insurance; and those with a parent who lived or lives in a nursing home, are associated with a greater likelihood of purchasing LTCI. However, with the exception of life insurance, none of these factors is independently associated with more than a forty percent higher likelihood of LTCI purchase, demonstrating that factors motivating purchase of LTCI are diffuse. The data presented suggest it important to re-evaluate expectations for the private market for LTCI based on individuals' personal and financial circumstances, taste for insurance, and prior experience. Realistically assessing the factors that influence long-range planning for LTC among those capable of purchasing LTCI illustrates the largely separate roles of the public and private sector in terms of financing LTC.

Health care management

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