Working Paper: NBER ID: w23918
Authors: Martin Boyer; Philippe De Donder; Claude Fluet; Marielouise Leroux; Pierre Carl Michaud
Abstract: We conduct a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design, and objective risks computed from a dynamic microsimulation model, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance using the framework developed by Einav et al. (2010). We investigate in turn causes for the low observed take-up of long-term care insurance in Canada despite substantial residual out-of-pocket financial risk. We first find that awareness and knowledge of the product is low in the population: 44% of respondents who do not have long-term care insurance were never offered this type of insurance while overall 31% report no knowledge of the product. Although we find evidence of adverse selection, results suggest it plays a minimal role in limiting take-up. On the demand side, once respondents have been made aware of the risks, we find that demand remains low, in part because of misperceptions of risk, lack of bequest motive and home ownership which may act as a substitute.
Keywords: Long-term care insurance; Knowledge barriers; Risk perception; Adverse selection
JEL Codes: D14; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low awareness and knowledge of long-term care insurance (LTCI) (G52) | low take-up rates (J68) |
| awareness of risks associated with long-term care (G52) | demand for LTCI (G52) |
| misperceptions of risk (D81) | low demand for LTCI (G52) |
| home ownership and bequest motives (D14) | preferences for insurance products (G52) |