Expectations of Nursing Home Use: Patterns, levels, and impact on the purchase of long-term care insurance

A substantial literature examining the factors associated with actual nursing home entry and the lifetime risk of nursing home use is often used to infer who is most at risk of asset depletion and, therefore, for whom nursing home insurance or additional savings is most valuable. Yet insurance purchases or additional savings must be driven by expectations. This dissertation utilizes longitudinal data from the Health and Retirement Study to examine the following research questions: 1) whether the five-year perceived risk of entering a nursing home is different for a specific age cohort over time, 2) whether the factors individuals use to assess their perceived five-year versus lifetime probability and five-year expectations of nursing home entry over time are different, and 3) how individuals incorporate lifetime expectations into their long-term care insurance decision. The results show the average perceived five-year risk of entering a nursing home increases at all ages over time, with female respondents reporting higher average five-year expectations than male respondents from 1994 to 2002. I find that individuals use different factors to assess their risk of nursing home entry over the next five-years versus over their remaining lifetime. I conclude that the first reflects their assessment of the risk of short-term rehabilitative or post-hospitalization stays while the second their assessment of long-term custodial care risks. I conclude these are two very different questions, capturing very different reasons for nursing home entry. I argue that an examination of changes in long-term care insurance decisions is the best way to measure the sensitivity of purchasing long-term care insurance to changes in the environment in which decisions are formulated. In addition to examining the determinants of having long-term care insurance, this dissertation uses an event history analysis to understand the correlates of long-term care insurance purchase. The analysis examines how individuals incorporate new information on risk factors, particularly their perceived lifetime risk of entering a nursing home. Although the price of long-term care insurance rises with age, the results suggest that these respondents, 60-69 in 1996, purchased additional insurance in response in part to new information.

Life Expectancy

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