Long-Term Care Insurance

Voluntary, even tax-subsidized, individual markets for insurance require substantially more marketing and information gathering by both the consumer and the insurer. For insurers these costs are either added to the premium or taken from the benefit. As a result, some individuals might not be eligible and the premium may be prohibitive. Further, adverse selection and moral hazard are much more substantial issues for the insurer in the individual market and hence they design both the application process and the product with these concerns in mind. Other limitations of private long-term care insurance include denial, misunderstanding of coverage, underwriting as well as the competing demands for savings that families face (i.e., housing, education, and retirement). People who need long-term care and people with medical conditions that could eventually require some assistance have usually been denied coverage.

In a survey of buyers and people initially interested in long-term care insurance who ultimately decided not to buy it, it is clear that the reasons for buying and for not buying are quite complex. Among buyers, the most important reason was to protect assets, but less than one-third identified this as an important reason. About 19 percent indicated a desire to avoid dependence on others, but nearly one-quarter had other reasons. On the other hand, of those who had investigated purchasing a long-term care insurance policy but chose not to, more than one-half (54 percent) indicated that the cost was a very important reason and another 30 percent indicated that the cost was an important reason in their decision not to buy (Health Insurance Association of America, October 2000). Other reasons cited by the non-buyers were suspicions about insurance companies, a lack of understanding about the risk of needing long-term care, confusion about what the government does and does not now cover, and general lack of knowledge about the policies.

It has been difficult, at best, to sell long-term care insurance to older people. It is even more difficult to sell it to younger people. This is particularly unfortunate, since this is when premiums are the least expensive. Moreover, while the probabilities of needing long-term care increase with age, nearly half of the long-term care population is under the age of sixty-five.