NCPA - National Center for Policy Analysis

Family Spillovers of Long-Term Care Insurance

September 28, 2015

One of the biggest financial risks for the elderly is long-term care.  Although long-term care insurance (LTCI) is available, few purchase it, resulting in high expenses through both Medicaid and private costs.

  • Only 13 percent of 65-year-olds have LTCI resulting in $49.3 billion spent out-of-pocket in 2012 on long-term care.
  • Traditional forms of care account for 87 percent of assistance to the elderly.
  • Two-thirds of the disabled elderly receive informal long-term care.

Many families do not purchase LTCI because of the intra-family moral hazard it produces.  Parents often feel that it is the responsibility of their children to provide care, which if removed through the purchase of LTCI, could result in behavior changes for adult children such as lower rates of co-residence and higher commitment to a profession. Inheritance amounts can also be lower in order to pay for LTCI costs, which could be motivation to provide care instead of purchasing insurance. As the number of aging citizens increases over the coming years it is important for policy makers to be aware of the extent to which formal insurance may influence standard insurance policies along with the implications for family resources.

Source: Norma B. Coe et al., "Family Spillovers of Long-Term Care Insurance," National Bureau of Economic Research, September 2015.

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