Is private long-term care insurance affordable for older adults?

TitleIs private long-term care insurance affordable for older adults?
Publication TypeThesis
Year of Publication2010
AuthorsKim, N
AdvisorJensen-Summers, G
Academic DepartmentEconomics
DegreeDoctor of Philosophy
UniversityWayne State University
CityDetroit, MI
KeywordsHealthcare, Income, Insurance, Retirement Planning and Satisfaction

Nationwide there are fewer than 7 million long-term care (LTC) insurance policies in force. Why do so few Americans buy private long-term care (LTC) insurance? Several theories have been offered as possible explanations, including the availability of Medicaid, misperceptions that Medicare or other policies cover LTC, beliefs that one's own risk of needing LTC services is small, or desires to simply rely on children and spouses for LTC. This study examines another possible explanation - that private LTC insurance is simply "unaffordable" for most older Americans, which may be why they don't buy it. This study begins by investigating the meaning of affordability in the context of private LTC insurance. I propose several definitions for affordability, drawing on concepts recently developed to gauge the affordability of acute-care health insurance and housing. Then using nationally representative data from the ongoing Health and Retirement Study (HRS) and the Rand HRS data the study examines the incidence of "unaffordability" of LTC insurance premiums among Americans over age 50, given each of our alternative definitions for it. I consider definitions for affordability, first, based on simple normative standards, such as whether remaining household income after paying for LTC insurance is above some (arbitrarily-set) threshold, and ratio definition, such as whether the ratio of premiums to income is less than some target amount, and more behavioral definitions of affordability, such as whether other adults with similar economic, demographic, and family circumstances are seen to purchase LTC insurance. In each case, the affordability definitions take into account the steep positive relationship between LTC insurance premiums and age-at-time-of-purchase. This analysis offers researchers and policymakers an operational framework for defining affordability, and for evaluating its relative importance as an explanation for non-purchase.

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