Mary E. Dorn is a doctoral candidate in the Department of
Personal Financial Planning at the University of Missouri—Columbia. She has more
than 30 years of experience in the financial services industry and has owned and
operated CDS Group Financial Services LLC since 1997.
Deanna L. Sharpe, Ph.D., CFP®, is an associate professor in
the Personal Financial Planning Department at the University of
Missouri—Columbia. Her teaching and research focus on factors affecting
later-life economic well-being, including labor supply, family resource
management, financial planning, consumer expenditure patterns, retirement
savings behavior, and financial planner/client relationships.
Geri Dickey, Ph.D., is an assistant professor in the Social
Work Department at Park University. Previously she was director of the bachelor
in social work program and assistant professor at Missouri Western State
University. She spent more than 20 years providing clinical social work services
primarily within mental health social work community-based clinics.
Dalisha D. Herring, CFP®, is a doctoral student in the
Department of Personal Financial Planning at the University of
Missouri—Columbia. She has more than a decade of experience in trust and estate
administration, retirement plan wholesaling, and personal financial planning
- As the older population continues to grow in number and live longer, the adequacy of private and public funding for long-term care expenses will become a greater concern, thereby increasing the importance of understanding the dynamics of long-term care insurance (LTCI) ownership.
- This research uses data from the Health and Retirement Study to identify and compare the characteristics of individuals associated with four LTCI purchase patterns.
- Financial planners can use the results of this study to target their discussions to clients regarding long-term care funding, resulting in more effective planning for an important need that may have been neglected.
- Consistency of results with the economic theories of permanent income, life cycle hypothesis, and risk transference is examined to provide practitioners and academics with information directing further research for consumers regarding long-term care.
The United States faces a
geriatric explosion as baby boomers reach age 65. The number of Americans age 65
and older is expected to increase from 40.2 million in 2010 to approximately
88.5 million in 2050. Given this trend, by 2030, close to one in five Americans
will be age 65 and older (Vincent and Velkoff 2010).
As this cohort ages over the next three decades, medical
advances that increase longevity will shift health concerns from acute to
chronic illness. A lengthy illness has potentially devastating financial
consequences on the accumulated wealth and retirement savings of individuals and
couples. Although medication and lifestyle choices may alleviate the debility of
many chronic illnesses, other illnesses such as Alzheimer’s disease eventually
render an individual incapable of taking care of him or herself. When this
happens, long-term care is needed, and the funding for such care will have been
predetermined based on advanced planning (or lack of it).
The information offered in this paper is useful for
financial planners who want to present a full and rational explanation to
clients regarding funding for long-term care. Long-term care insurance (LTCI) is
part of an insurance portfolio for clients, however the literature indicates
this is not the standard. Presenting information about long-term care funding to
clients and their adult children would be wise. The potential beneficiaries may
wish to secure their inheritance with the funding mechanism for insurance.
Planners who neglect to present—and to document the presentation of—long-term
care funding options to clients open themselves to possible legal battles with
family members. The intent of this study is to inform planners of client target
markets for LTCI purchase and to help identify clients that would generally
According to the permanent income and life cycle consumption
hypotheses, consumers prefer smooth lifetime consumption patterns (Bryant and
Zick 2005). Therefore, individuals and families will adjust their consumption
and savings patterns accordingly, based on expected future income, needs,
interest rates, anticipated inflation, and preferences.
Consumers engage in precautionary savings to ensure smooth
consumption in the event of an unexpected, exogenous income shock such as
temporary unemployment (Hubbard, Skinner, and Zeldes 1994; Starr-McCluer 1996).
However, it is difficult for consumers to use precautionary saving to meet
occasional, severe, and unpredictable income shocks without affecting their
normal consumption patterns. Consequently, when the probability of occurrence is
uncertain and the risk of financial loss is great, consumers often transfer risk
to a third party through purchase of actuarially fair-priced insurance
(Harrington and Niehaus 1999). Long-term care insurance (LTCI) can be used to
transfer the risk of having to pay the potentially exorbitant financial costs of
long-term care. Curiously, although purchase of LTCI is a rational consumer
choice, only 15.6 percent of the population age 55 or older own policies,
according to 2014 data from the U.S. Census Bureau.
Privately purchased LTCI plans are categorized by the U.S.
Census Bureau as group plans (31 percent) or individual plans (69 percent).
Potential reasons for rational consumers’ non-purchase of LTCI include: budget
constraints, available substitutes, lack of understanding about the LTCI
product, and the perceived probability of need for long-term care. Complicated
consumer choices, inability of the insurance industry to establish a
non-problematic method for sales, and underwriting have placed the LTCI industry
in a state of flux for several years (Cohen, Kaur, and Darnell 2013), as
companies have dropped in and out of the market and products have changed from
year to year.
As the older population continues to grow in number and live
longer, more individuals face the potential need for long-term care. Adequacy of
both private and public funding (Medicaid and Medicare) for long-term care
expenses will become a greater concern. Consequently, it is important to improve
the understanding of the dynamics of LTCI ownership.
This exploratory research used the 2006 and 2012 waves of
the Health and Retirement Study (HRS) to identify and compare the
characteristics of individuals associated with four LTCI purchase patterns:
- Owner (had LTCI in 2006 and 2012)
- Lapser (had LTCI in 2006 but not in 2012)
- Purchaser (no LTCI in 2006, have LTCI in 2012)
- Non-owner (no LTCI in 2006 or 2012)
Results were compared with prior research. Consistency of
results with the economic theories of permanent income, life cycle hypothesis,
and risk transference were examined. This study provides practitioners and
academics with information that directs further research and education of
consumers regarding funding long-term care.
According to Morith (2004), 87 percent of survey respondents
thought that long-term care was a big problem in the U.S. Eighty-two percent
felt it was irresponsible not to plan for long-term care needs, however only 12
percent stated they had adequately done so.
Additional research has found that many seniors fear
outliving their retirement savings given expected health care needs, yet these
same seniors state they do not want to become a burden to their families (Grote
2011). Although these feelings are valid, between 2000 and 2040, the number of
nursing home residents is expected to rise from approximately 1.2 million to 2.7
million (Gibson and Redfoot 2007).
Ng, Harrington, and Kitchener (2010) found that in 2006, 39
percent of nursing home residents accounted for 61 percent of long-term care
spending by Medicaid. They also found that in 2007, public funding accounted for
approximately 67 percent of long-term care spending (25 percent Medicare and 42
percent Medicaid), which amounted to $190.4 billion. (Medicare spending for
long-term care is limited to post-acute and hospice care either in a nursing
home or at home.) The remaining 33 percent of long-term care spending was paid
privately out-of-pocket, with 11 percent paid for with LTCI.
Many individuals report that the cost of LTCI is prohibitive
or they distrust LTCI providers (Curry, Robison, Shugrue, Keenan, and Kapp
2009). But avoiding LTCI could be problematic. A U.S. Department of Health and
Human Services report indicated individuals have approximately a 40 percent
chance of entering a nursing home in their lifetime. Of those who enter,
approximately 10 percent will stay from three to five years (Nelms, Mayes, and
Doll 2012). The national average daily cost of a semi-private room in a nursing
home is $225, according to 2016 data from Genworth (the most current information
available), which translates to approximately $410,625 for a five-year stay,
without considering any home health care costs prior to entering the nursing
Why does the purchase of private LTCI remain at such low
levels? For a rational consumer with bequest motives or preferences for care for
whom LTCI is not cost prohibitive, reasons for not having private LTCI could be
having substitutes and alternatives for LTCI, uncertainty regarding the
perceived need for long-term care, or supply-side failures on the part of
Given the generally accepted principle that insurance is
appropriate for loss exposures with low probability and high potential for
severity, one could conclude that for risk-averse individuals, the greater the
uncertainty surrounding a possible loss, the greater the value of insurance to
cover such a loss (Arrow 1963). Expenditures for long-term care meet these
criteria for many in our society.
Further, the increased incidence of dementia and Alzheimer’s
disease has the potential to render a greater number of individuals in need of
long-term care. According to the Alzheimer’s Association, approximately 5
million seniors age 65 or older were diagnosed with Alzheimer’s disease in 2014,
of which almost two-thirds were women. With a greater proportion of the
population becoming elderly, projections for future incidence of dementia and
Alzheimer’s disease indicate a doubling of new cases by 2050 (Seshadri and Wolf
Several studies have found that the survival rate for
individuals after a dementia diagnosis ranges between about three years and
six-and-a-half years (Wolfson et al. 2001) with women averaging about
four-and-a-half years and men averaging about four years (Xie, Brayne, and
Matthews 2008). The cost of such care has the potential to reach almost $500,000
per person over a five-year period.
Consumers presumably desire to minimize their possible
long-term care costs while maintaining their customary life cycle consumption
patterns (Gupta and Li 2007). Long-term care expenses must take into account
current and future LTCI premiums (if insurance is purchased), and the
out-of-pocket expenses for services not covered by insurance (Gupta and Li
2007). As with any insurance product, the demand for the insurance will depend
on the individual valuation of the “commodity” being insured (Cook and Graham
1977), which, for LTCI, is wealth accumulation and health recovery. Individuals
place value on the cost of long-term care using cost-benefit analysis, perceived
probability of need, informal care substitutes, wealth preservation, and bequest
motives. If the value of such care is greater than the expense of an LTCI
policy, then purchasing a policy is a reasonable choice.
For individuals at either end of the financial spectrum,
LTCI may not be a reasonable alternative. Individuals with relatively low income
and wealth will rationally depend on Medicaid for their long-term care needs.
Those with high income and high net worth have the financial ability to
self-insure against the probability of long-term care costs, leaving individuals
in the “middle” as those with the greatest potential benefit from the purchase
Prior research regarding purchase and non-purchase of
private LTCI policies has focused on these primary factors: substitution and
alternatives for LTCI, consumer understanding of need for long-term care, and
characteristics of the LTCI industry (Pauly 1990; Sloan and Norton 1997; McCall,
Mangle, Bauer, and Knickman 1998; Cramer and Jensen 2006). This research
continues to explore these areas.
Substitutions and Alternatives to LTCI
According to the U.S. Census Bureau, the national median
income in 2014 was $53,657, but for individuals ages 65 or older, it was
$36,895. Medicaid is the primary source of funding for nursing home care, but it
is not without limits. Medicaid is a means-tested program that requires
individuals to be virtually destitute before funding is triggered. Because the
spend-down mechanism to qualify for Medicaid can be considered a reduced premium
for long-term care coverage beyond that charged in the private marketplace,
individuals without private insurance who need long-term care services will be
required to “spend down” current assets to qualify for Medicaid.
Further, Medicaid funds a limited choice of long-term care
facilities. The elderly would prefer to avoid low-quality facilities (Kemper,
Spillman, and Murtaugh 1991), and state certificate of need policies for the
number of Medicaid beds and reimbursement rates can further reduce the facility
choices for the consumer (Harrington, Preston, Grant, and Swan 1992). Still,
Medicaid has been found to have a “crowd out” effect on the purchase of
privately held plans and therefore serves as a substitute for such policies,
especially for individuals with relatively modest means (Pauly 1990; Sloan and
Home equity is another potential substitute for LTCI
(Davidoff 2010). Many seniors live in their homes throughout retirement unless
long-term care becomes a necessity, and many of these homes carry no mortgage.
Therefore, sufficient home equity can substitute for LTCI in two ways, according
to Brown and Finkelstein (2009): (1) home equity may crowd out an LTCI purchase
if the individual sells his or her home and uses the proceeds to fund long-term
care; and (2) a reverse mortgage would allow an individual to finance long-term
care needs with their home equity while retaining the asset. Davidoff (2010)
found that among those for whom Medicaid was not a viable alternative, the
majority had home equity sufficient to fund much of their potential long-term
Although financial costs are a major consideration in an
LTCI purchase, much of the emphasis of these policies is on the institutional
care that might be needed (Pauly 1990). Two points are relevant: (1) the
possible substitution effect that adult children might have on LTCI policies;
and (2) the amount of informal care given prior to institutional care becoming
necessary. Pauly (1990) suggested that a possible reason for not purchasing LTCI
is to reduce the likelihood of institutional care over informal care by adult
children. Lack of coverage and expense of care is presumably a motivating factor
in familial care. Pauly (1990) also suggested that adult children are more
willing to provide informal care if no LTCI is in place to cover the cost of
formal care. Additionally, many adult children would prefer their parents not
spend all their retirement savings paying for non-family members to do tasks
that could be performed by those within close proximity. The implication may be
that traditional bequest motives have been substituted for the informal care
that would be obtained by not insuring the cost of long-term care.
Cantor (1989) found that a majority of care provided to
elderly persons was provided by family members. Most individuals decline in
health gradually over time, losing the ability to perform some instrumental
activities of daily living (IADLs) and activities of daily living (ADLs) to a
point where institutional care becomes necessary. Prior to institutional care,
assistance required by an individual, like cleaning, transportation to and from
doctor’s appointments, paying bills, etc., can be done by family members (Kemper
1992). This would leave retirement assets in tact until institutional care is
necessary. Many families adjust their living arrangements to accommodate a
parent in order to postpone the need for formal care (Hoerger, Picone, and Sloan
1996). Although informal care can be considered a substitute for LTCI, Brown,
Goda, and McGarry (2012) found that individual preference for formal versus
informal care was statistically significant in the decision to purchase LTCI.
Adult day service centers (ADS) can give the caregiver a
respite from their caregiving duties to work or take time for themselves. As of
2010, approximately 4,600 ADS centers in the U.S. served 260,000 participants
and their caregivers (Dabelko-Schoeny and Anderson 2010). Adult day service
centers are funded by both private and public funds with a large portion coming
from Medicaid (Jacobs and Weissert 1987).
Although ADS centers will only allow for a daily respite for
a caregiver, other permanent housing alternatives have become prevalent
substitutes for traditional informal care. These include congregate housing,
assisted living, and continuing care retirement communities (Gibler, Lumpkin,
and Moschis 1997; Zimmerman et al. 2003).
Continuing care retirement communities (CCRCs) have a full
range of housing from independent living, to assisted living, to a nursing
facility. Approximately 1,990 CCRC facilities operated in the U.S in 2010 (Zarem
2010). According to one study, seniors considering a CCRC facility were most
concerned with their ability to remain independent and have the availability of
long-term care onsite (Kichen and Roche 1990).
Perceived Need and Health Status
The perceived need for long-term care has been debated at
length with mixed results. Research has suggested that consumers underestimate
the perceived need for long-term care (Lindrooth, Hoerger, and Norton 2000;
Cohen, Kumar, and Wallack 1992). Yet Taylor, Osterman, Acuff, and Østbye (2005),
found individuals overestimated the probability of moving into a nursing home in
the next five years. Brown, Goda, and McGarry (2012) reported that 45 percent of
those asked felt they may eventually need long-term care and those same survey
respondents were 10 percent more likely to own LTCI than those who did not
believe they would need such care. Their results were consistent with Sloan and
Self-reported health conditions have been found to
positively influence the decision to purchase LTCI (Lindrooth, Hoerger, and
Norton 2000; Caro, Porell, and Kwan 2011). And Sloan and Norton (1997) argued
that having self-reported good or excellent health was linked with the purchase
Many studies have attempted to measure financial literacy
surrounding long-term care (see, for example, the “2009 MetLife Market Survey of
Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs” at
General findings are that consumers have little knowledge regarding long-term
care (Matzek and Stum 2010), which is another potential reason for the lack of
private LTCI policies.
Understanding the Insurance Marketplace
The LTCI marketplace has experienced a lot of change. LTCI
was first offered to consumers as an unregulated product in 1974. The National
Association of Insurance Commissioners (NAIC) began to provide policy standards
to state insurance regulators in 1987. The Health Insurance Portability and
Accountability Act (HIPAA) gave certain LTCI policies preferred tax status with
limits. New required benefit triggers, lack of the availability of cash value,
and other policy provisions made the policies more difficult for insurance
companies to underwrite and promote.
Because many insurance companies in the LTCI marketplace had
underpriced their policies, double-digit rate increases became pervasive and
public outcry grew. The consumers most affected were seniors nearing the age of
benefit need. Consumers who presumed the “cost” of LTCI as too high often cited
an underlying fear of substantial rate increase (Rubin et al. 2014).
Adverse selection occurs when the insured has information
regarding their risk that the insurer does not—meaning individuals who have a
greater anticipated need for future insurance protection are more likely to
purchase the coverage than those who do not. Individuals who are most likely to
need the coverage will pay the higher premium while others find coverage
elsewhere or let their policies lapse. Studies have indicated most policy lapses
occur within the first five years of ownership (Finkelstein, McGarry, and Sufi
2005; Rubin et al. 2014).
This study analyzed data from the 2006 and 2012 waves of the
Health and Retirement Study (HRS), a nationally representative, longitudinal
study of persons over age 50 using a multi-stage area probability sample design
that includes questions specifically related to LTCI. The years 2006 and 2012
bookended the Great Recession of 2008. During this period, many individuals lost
substantial value in their homes, retirement, and stock portfolios. A visible
reduction in spending combined with an increase in credit card debt over the
same period (Hurd and Rohwedder 2010) posed a threat to the purchase and
continuation of LTCI policies.
This study selected respondents that were present in both
the 2006 and 2012 waves of the HRS and who were not on Medicaid. Respondents
were generally interviewed by phone biannually and are represented in subsequent
waves until death or attrition. The final observations included and analyzed in
this study totaled 12,696.
In both waves, the HRS asked respondents: “Not including
government programs, do you now have any LTCI which specifically covers nursing
home care for a year or more or any part of personal or medical care in your
home?” (see hrsonline.isr.umich.edu). The response to this question determined
categorization of the respondent in the study as: owner, lapser, purchaser, or
non-owner of LTCI.
Prior research indicated that income, wealth, home equity,
marital status, number of children, age, and self-reported health and
probability of nursing home stay in the next five years were salient variables
regarding the decision to purchase LTCI (Ahlstrom, Tumlinson, and Lambrew 2004;
Brown, Goda, and McGarry 2012, Cohen, Kumar, and Wallack 1992; Davidoff 2010;
Pauly 1990). Consequently, these variables were used as independent variables in
Sample characteristics are presented in Table 1. Among the
12,696 observations relevant to this study, 9.7 percent were owners of LTCI
across both waves, 4.5 percent let their policies lapse, 4.3 percent were
purchasers, and 81.5 percent were non-owners of LTCI.
Among the four groups, purchasers had the lowest mean age
(63 in 2006), whereas owners had the highest mean age (68 in 2006). The majority
of respondents were married in both waves, with lapsers having the highest
percentage of married respondents at 97 percent in 2006 and 72 percent in 2012.
Conversely, non-owners of LTCI had the lowest percentage married (81 percent in
2006 and 66 percent in 2012). Mean total assets for 2006 and 2012 were $991,219
and $736,652 respectively for owners; $621,760 and $286,507 respectively for
lapsers; $659,509 and $544,917 respectively for purchasers, and $503,931 and
$380,012 respectively for non-owners.
Mean home equity values decreased from 2006 to 2012 for all
respondents. Mean incomes for 2006 (2012) were $105,232 ($93,567) for owners;
$77,256 ($74,665) for lapsers; $94,638 ($104,371) for purchasers; and $65,206
($64,724) for non-owners. The majority of respondents reported being in
better-than-average health in both study waves. Mean self-reported probability
of needing nursing home care in the next five years was generally higher in 2012
versus 2006 for respondents with the largest increase among the owners of LTCI.
Finally, the mean number of children was close to three for all conditions of
LTCI ownership with a slightly lower number of living children observed in 2012
Respondents who owned coverage had fewer children on
average. In contrast, non-owners reported the largest number of children. These
results support the idea that potential family care may substitute for LTCI.
Total household assets, income, and home equity were highest
on average among owners of LTCI and lowest among non-owners, suggesting that the
price of LTCI may be a barrier to purchase among consumers with relatively fewer
financial resources. Those who let their policies lapse had lower average income
and home equity than those who purchased the coverage. The average asset level
was also lower for lapsers versus buyers. Additionally, lapsers had the greatest
decrease in average assets from 2006 to 2012 at 54 percent.
Self-reported health was best among lapsers, followed by
owners, purchasers, and non-owners. Not surprisingly, the self-estimated
probability of needing nursing home care in the next five years was generally
higher in 2012 compared with 2006 for respondents in every status of ownership
except lapsers, who reported a slight decrease. Owners had the highest mean
probability in the 2012 wave followed by lapsers, purchasers, and non-owners.
Interestingly, purchasers had the largest mean increase in perception of need
for long-term care from 10 percent to 16 percent or 60 percent.
To identify factors significantly associated with LTCI lapse
or purchase given longitudinal data, fixed effects logistic regression was used
with the model log (Pit /1–Pit) = µt+βXit + γzi + αi. That is,
log-odds of LTCI purchase or lapse are a function of time-varying (x) and time-invariant factors (z and α).
Results reported in Table 21 indicate that becoming older and an increase in
subjective probability of nursing home entry were associated with reduction in
likelihood of lapsing. Conversely, an additional child and a decline in asset
value and spouse health were associated with increased likelihood of lapsing.
Becoming older was associated with a decreased likelihood of being a purchaser
or LTCI, and a rise in asset value was associated with increased likelihood of
being a purchaser.
This exploratory study compared characteristics of four
different groups of LTCI owners. These comparisons add to the current literature
on LTCI purchase consideration of “purchasers” (those who did not own LTCI in
2006, but did own the product in 2012) and “lapsers,” as prior research compared
only ownership and non-ownership (Brown and Finkelstein 2009; Cramer and Jensen
2006; Curry, Robison, Shugrue, Keenan, and Kapp 2009).
Rational choice theory dictates that a rational consumer
concerned about the need for long-term care and wishing to protect assets for
either consumption or bequest motives, would consider LTCI as a viable funding
choice, yet current ownership of such policies remains low. Substitutions for
LTCI as well as alternative housing arrangements have been presented as possible
reasoning for the low rates of ownership.
The lack of long-term care literacy and flux within the
insurance industry seemingly hampering the ability to produce a viable,
comprehensive, affordable LTCI option for the consumer has been thought to stunt
LTCI sales. Research has also suggested that individuals who do consider
coverage do so at retirement (Sloan and Norton 1997; Atchley and Dorman 1994).
This study substantiated this finding by indicating that LTCI owners were older
than purchasers, lapsers, and non-owners.
Because the majority of insurance policies consider age in
the underwriting process, it is reasonable to conclude that LTCI policies are
less expensive at younger ages. In fact, it is suggested that ages 52 to 64 are
the best time to purchase policies (Rubin et al. 2014). The finding presented
here that purchasers had the lowest mean age of households in the four
conditions of ownership is consistent with this literature.
Previous studies have found that if consumers lapse their
policies, they usually do so shortly after purchase and the longer the policies
are in force the less likely they are to lapse (Rubin et al. 2014; Cohen, Kaur,
and Darnell 2013). The insurance policies owned by the lapsing cohort in 2006
could have been a group plan offered by their employer that was lost at
retirement. Additionally, many group plans can either not be converted to an
individual plan upon the end of employment, or employees choose not to take
advantage of this option. Policy implications for this are substantial for those
selling LTCI, for employers seeking to increase the choices and viability of
voluntary benefits offered to employees, and for insurance companies attempting
to maintain their risk pool.
This study’s results are consistent with the literature
regarding the age of LTCI policy owners—owners are older and typically married
with relatively fewer children. However, this study’s findings also contradict
the literature by indicating substantially higher wealth, income, and home
equity for LTCI owners compared with individuals in the other categories of LTCI
For example, mean wealth for owners was between 33 and 41
percent greater in 2006, and was 26 to 61 percent higher in 2012 than found in
other statuses. Home equity was also greater for owners compared with others by
20 to 47 percent. Another difference was that, with the exception of purchasers,
LCTI owners had a substantially higher mean income compared with all other
The difference in financial characteristics of owners versus
the other statuses might indicate a contradiction to the concept of
self-insurance for a rational consumer found in the current literature.
Conversely, a large portion of the previous literature indicates that the cost
of LTCI limits its marketability to a sizable portion of the population. Rubin
et al. (2014) called those most likely to have the resources to purchase LTCI
the “middle affluent,” as NAIC suggests no greater than 7 percent of income be
used for LTCI premiums.
In their study of group LTCI, Matzek and Stum (2010) found
that an employee’s income was the only defining characteristic affecting the
long-term care literacy of the employee and thereby the purchasing decision.
Such findings are consistent with this study’s finding that households defined
as LTCI owners had greater financial assets than those in other categories of
In this study, respondents who lapsed LTCI in the second
wave of the HRS study had the largest increase in assets (54 percent from 2006
to 2012), but also had a 3.4 percent decrease in income. Respondents who
purchased LTCI had a 17 percent decrease in assets along with a 10 percent
increase in income. These two groups run parallel to current literature in that
the lapsers do so to protect their consumption patterns through the preservation
of assets by eliminating the costly premium; and purchasers have less incentive
to save now with both an increase in income and assets to maintain their
consumption patterns. Non-owners had the lowest financial characteristics of all
statuses and follow the literature’s assertion of rational choice, since
Medicaid would be a rational choice for this group.
This study indicated respondents who own LTCI had fewer
children compared with those in other statuses, and non-owners had the greatest
number of children, coinciding with the literature regarding informal care as a
substitute for LTCI.
Also, self-reported health for all statuses of ownership was
quite consistent with the probability of need for nursing home services,
increasing across the statuses from 2006 to 2012. This result seems reasonable
as all individuals aged six years between waves. Not surprising, individuals who
lapsed their policies indicated a decrease in probability of the need for a
nursing home in five years from 2006 to 2012, while purchasers indicated an
increase in this probability.
Limitations of this study include the lack of quantitative
evidence in the data regarding consumer choice and preferences. For example,
respondents who could self-insure may prefer to reduce current consumption and
save to ensure placement in a nursing home of choice. Or these same respondents
may simply have strong bequest motives. A closer look at consumer choice and
preferences could flush out answers to questions that might address the “why”
regarding the lack of private funding for long-term care needs such as
substitutes for LTCI and alternative housing arrangements. Additionally, for the
purposes of this study, it was assumed that individuals who were designated as
“owners” owned the same LTCI policy in both the 2006 and 2012 waves of the HRS.
But, the actual LTCI purchase date is unknown, and owners in 2006 could have
dropped one policy and purchased another by 2012.
The HRS does not include any underwriting data from
insurance companies including applicants who were denied coverage. This lack of
evidence within the sample used here regarding denied LTCI policies due to
underwriting may have resulted in respondents being placed in a state of
non-ownership when that would not be their preferred status.
Further, questions regarding the type of LTCI policies
owned—group or individual plans—were not asked in the HRS study and may add bias
regarding those who lapse. Finally, the 2006 and 2012 waves bookend the 2008
housing and financial crisis experienced in the U.S. This financial crisis may
also lead to bias in the results, especially regarding the financial
characteristics of all statuses. The 2008 financial crisis contributed to the
loss of many middle management jobs, for which the sample used here would
naturally fit. During this time, home equities plummeted as did the stock
market, and a consequence may have been the lapse of both individual and group
Bequest motives were not controlled for in this study,
possibly accounting for the contradictory findings regarding financial
characteristics of LTCI owners. Future research regarding both individual and
family personal preferences of LTCI purchase is needed. Additionally, the
emergence of the modern family and the shift away from the traditional nuclear
family renders research surrounding personal preferences of long-term care
Fixed effects logistic regression is appropriate when the
dependent variable is dichotomous, the dependent and the independent variables
are measured at two points in time, and change occurs in the dependent and
independent variables over time. Use of change instead of levels for
time-varying independent variables helps avoid multicollinearity. The method
used here for logistic regression follows Allison (2005). Because all
respondents aged at the same rate and the change in number of children over
time was negligible, both factors were treated as time-invariant and entered the
analyses as level in 2006. Following prior research, income, assets, and home
equity were categorized as low, medium, and high based on quartile distribution
to reduce potential for bias due to nonlinearity.
Ahlstrom, Alexis, Anne Tumlinson, and Jeanne M. Lambrew. 2004.
“Linking Reverse Mortgages and Long-Term Care Insurance.” Brookings Institution
report, available at
Allison, Paul D. 2005. Fixed
Effects Regression Methods for Longitudinal Data Using SAS. Cary, N.C.:
Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics
of Medical Care.” The American Economic
Review 53 (5): 941–973.
Atchley, Robert C., and Mark S. Dorman. 1994. “Gaining
Marketing Insights from the Ohio Long-Term Care Insurance Survey.” Journal of the American Society of CLU and ChFC 48
Brown, Jeffrey R., and Amy Finkelstein. 2009. “The Private
Market for Long-Term Care Insurance in the United States: A Review of the
Evidence.” Journal of Risk and Insurance 76
Brown, Jeffrey R., Gopi Shah Goda, and Kathleen McGarry. 2012.
“Long-Term Care Insurance Demand Limited by Beliefs about Needs, Concerns about
Insurers, and Care Available from Family.” Health
Affairs 31 (6): 1,294–1,302.
Bryant, W. Keith, and Cathleen D. Zick. 2005. The Economic Organization of the Household, second edition. Cambridge, United
Kingdom: Cambridge University Press.
Cantor, Marjorie H. 1989. “Social Care: Family and Community
Support Systems.” The Annals of the American Academy
of Political and Social Science 503 (1): 99–112.
Caro, Frank G., Frank W. Porell, and Ngai Kwan. 2011.
“Expectancies and Ownership of Long-Term Care Insurance Policies among Older
Married Couples.” Journal of Applied
Gerontology 30 (5): 562–586.
Cohen, Marc A., Ramandeep Kaur, and Bob Darnell. 2013.
“Exiting the Market: Understanding the Factors Behind Carriers’ Decision to
Leave the Long-Term Care Insurance Market.” Report prepared by the U.S.
Department of Health and Human Services, available at aspe.hhs.gov/report/exiting-market-understanding-factors-behind-carriers-decision-leave-long-term-care-insurance-market.
Cohen, Marc A., Nanda Kumar, and Stanley S. Wallack. 1992.
“Who Buys Long-Term Care Insurance?” Health
Affairs 11 (1): 208–223.
Cook, Philip J., and Daniel A. Graham. 1977. “The Demand for
Insurance and Protection: The Case of Irreplaceable Commodities.” The Quarterly Journal of Economics 91 (1):
Cramer, Anne Theisen, and Gail A. Jensen. 2006. “Why Don’t
People Buy Long-Term-Care Insurance?” The Journals
of Gerontology Series B: Psychological Sciences and Social Sciences 61
Curry, Leslie A., Julie Robison, Noreen Shugrue, Patricia
Keenan, and Marshall B. Kapp. 2009. “Individual Decision Making in the
Non-Purchase of Long-Term Care Insurance.” The
Gerontologist 49 (4): 560–569.
Dabelko-Schoeny, H., and K. A. Anderson. 2010. “The MetLife
National Study of Adult Day Services: Providing Support to Individuals and Their
Family Caregivers.” MetLife Mature Market Institute study available at
Davidoff, Thomas. 2010. “Home Equity Commitment and Long-Term
Care Insurance Demand.” Journal of Public
Economics 94 (1): 44–49.
Finkelstein, Amy, Kathleen McGarry, and Amir Sufi. 2005.
“Dynamic Inefficiencies in Insurance Markets: Evidence from Long-Term Care
Insurance.” National Bureau of
Economic Research paper No. w11039.
Gibler, Karen, James R. Lumpkin, and George P. Moschis. 1997.
“Mature Consumer Awareness and Attitudes toward Retirement Housing and Long-Term
Care Alternatives.” Journal of Consumer
Affairs 31 (1): 113–138.
Gibson, Mary Jo, and Donald L. Redfoot. 2007. “Comparing
Long-Term Care in Germany and the United States: What Can We Learn from Each
Other?” AARP Public Policy Institute study available at assets.aarp.org/rgcenter/il/2007_19_usgerman_ltc.pdf.
Grote, Jim. 2011. “Keeping Ahead of the Long-Term Care
Domino.” Journal of Financial Planning 24
Gupta, Aparna, and Lepeng Li. 2007. “Integrating Long-Term
Care Insurance Purchase Decisions with Saving and Investment for Retirement.”
Insurance: Mathematics and Economics 41 (3):
Harrington, Scott E., and Greg Niehaus. 1999. Risk Management and Insurance. New York, N.Y.:
Harrington, Charlene, Steve Preston, Leslie Grant, and James
H. Swan. 1992. “Revised Trends in States’ Nursing Home Capacity.” Health Affairs 11 (2): 170–180.
Hoerger, Thomas J., Gabriel A. Picone, and Frank A. Sloan.
1996. “Public Subsidies, Private Provision of Care, and Living Arrangements of
the Elderly.” The Review of Economics and
Statistics 78 (3): 428–440.
Hubbard, R. Glenn, Jonathan Skinner, and Stephen P. Zeldes.
1994. “The Importance of Precautionary Motives in Explaining Individual and
Aggregate Saving.” Carnegie-Rochester Conference
Series on Public Policy 40: 59–124.
Hurd, Michael D., and Susann Rohwedder. 2010. “Effects of the Financial Crisis and Great
Recession on American Households.” National Bureau of Economic Research
paper No. w16407.
Jacobs, Bruce, and William Weissert. 1987. “Using Home Equity
to Finance Long-Term Care.” Journal of Health
Politics, Policy and Law 12 (10): 77–96.
Kemper, Peter. 1992. “The Use of Formal and Informal Home Care
by the Disabled Elderly.” Health Services
Research 27 (4): 421–451.
Kemper, Peter, Brenda C. Spillman, and Christopher M.
Murtaugh. 1991. “A Lifetime Perspective on Proposals for Financing Nursing Home
Care.” Inquiry 28 (4): 333–344.
Kichen, Jeffrey, and Joseph L. Roche. 1990. “Life-Care
Resident Preferences.” In R. Chellis and P. Grayson (eds.), Life Care: A Long-Term Solution? Lexington, MA:
Lindrooth, Richard C., Thomas J. Hoerger, and Edward C.
Norton. 2000. “Expectations among the Elderly about Nursing Home Entry.” Health Services Research 35 (5): 1,181–1,202.
Matzek, Amanda E., and Marlene S. Stum. 2010. “Are Consumers
Vulnerable to Low Knowledge of Long-Term Care?” Family and Consumer Sciences Research Journal 38
McCall, Nelda, Steven Mangle, Ellen Bauer, and James Knickman.
1998. “Factors Important in the Purchase of Partnership Long-Term Care
Insurance.” Health Services Research 33 (2):
Morith, Nancy P. 2004. “Long-Term Care Planning.” Journal of Financial Service Professionals 58 (1):
Nelms, Linda L., Saral L. Mayes, and Betty Doll. 2012. “The
Interface between Continuing-Care Retirement Communities and Long-Term-Care
Insurance.” Journal of Financial Planning 25
Ng, Terence, Charlene Harrington, and Martin Kitchener. 2010.
“Medicare and Medicaid in Long-Term Care.” Health
Affairs 29 (1): 22–28.
Pauly, Mark V. 1990. “The Rational Nonpurchase of
Long-Term-Care Insurance.” Journal of Political
Economy 98 (1): 153–168.
Rubin, Larry, Kevin Crowe, Adam Fisher, Omar Ghaznawi, Richard
McCoach, Rachel Narva, David Schaulewicz, Tom Sullivan, and Toby White. 2014.
“An Overview of the U.S. LTC Insurance Market (Past and Present): The Economic
Need for LTC Insurance, the History of LTC Regulation and Taxation, and the
Development of LTC Product Design Features.” Society of Actuaries monograph
available at soa.org.
Seshadri, Sudha, and Philip A. Wolf. 2007. “Lifetime Risk of
Stroke and Dementia: Current Concepts and Estimates from the Framingham
Study.” The Lancet Neurology 6 (12):
Sloan, Frank A., and Edward C. Norton. 1997. “Adverse
Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence
from the Long-Term Care Insurance Market.” Journal
of Risk and Uncertainty 15 (3): 201–219.
Starr-McCluer, Martha. 1996. “Health Insurance and
Precautionary Savings.” The American Economic
Review 86 (1): 285–295.
Taylor, Donald H., Jan Osterman, S. Will Acuff, and Truls
Østbye. 2005. “Do Seniors Understand their Risk of Moving to a Nursing
Home?” Health Services Research 40 (3):
Vincent, Grayson K., and Victoria Averil Velkoff. 2010. “The
Next Four Decades: The Older Population in the United States: 2010 to 2050.”
U.S. Census Bureau report No 1138.
Weissert, William G. 1990. Adult
Day Care: Findings from a National Survey. Baltimore, MD: The Johns
Hopkins University Press.
Wolfson, Christina, David B. Wolfson, Masoud Asgharian, Cyr
Emile M’lan, Truls Østbye, Kenneth Rockwood, and D.F. Hogan. 2001. “A
Reevaluation of the Duration of Survival after the Onset of Dementia.” The New England Journal
of Medicine 344 (15): 1,111–1,116.
Xie, Jing, Carol Brayne, and Fiona E. Matthews. 2008.
“Survival Times in People with Dementia: Analysis from Population Based Cohort
Study with 14 Year Follow-Up.” The BMJ 336 (7638): 258–262.
Zarem, Jane E. 2010. “Today’s Continuing Care Retirement
Community (CCRC).” American Seniors
Housing Association, available at
Zimmerman, Sheryl, Ann L. Gruber-Baldini, Philip D. Sloane, J.
Kevin Eckert, J. Richard Hebel, Leslie A. Morgan, Sally C. Stearns, Judith
Wildfire, Jay Magaziner, Cory Chen, and Thomas R. Konrad. 2003. “Assisted Living
and Nursing Homes: Apples and Oranges?” The
Gerontologist 43 (2): 107–117.
Dorn, Mary E., Deanna L. Sharpe, Geri Dickey, and Dalisha D.
Herring. 2017. “Understanding the Determinants of a Long-Term Care Insurance
Purchase.” Journal of Financial Planning 30