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Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study

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  • Yong Li
  • Gail A. Jensen

Abstract

This paper empirically analyzes how often and why individuals drop their long-term care insurance (LTCI) coverage, using data from the 2002-2008 Health and Retirement Study. It finds that over a two-year period 13% of LTCI policies lapse. It also finds that the probability of an LTCI lapse increases with a lack of consumer knowledge about their policy's benefit provisions, with prior encounters with the long-term care system, with less expensive policies, and with less generous policies. These findings raise the possibility that some policyholders may not understand their coverage limitations, and learn about them only after actually using long-term care services. Greater consumer awareness of LTCI policy features and limitations may help reduce lapse rates and increase the stability of the LTCI market.

Suggested Citation

  • Yong Li & Gail A. Jensen, 2012. "Why Do People Let Their Long-term Care Insurance Lapse? Evidence from the Health and Retirement Study," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(2), pages 220-237.
    • Handle: RePEc:oup:apecpp:v:34:y:2012:i:2:p:220-237.
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    File URL: http://hdl.handle.net/10.1093/aepp/pps017
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    Cited by:

    1. Lambregts, Timo R. & Schut, Frederik T., 2020. "Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    2. Leora Friedberg & Wenliang Hou & Wei Sun & Anthony Webb, 2023. "Lapses in long‐term care insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 90(3), pages 569-595, September.
    3. Wang, Qun & Abiiro, Gilbert Abotisem & Yang, Jin & Li, Peng & De Allegri, Manuela, 2021. "Preferences for long-term care insurance in China: Results from a discrete choice experiment," Social Science & Medicine, Elsevier, vol. 281(C).
    4. Fels, Markus, 2016. "When the affordable has no value, and the valuable is unaffordable: The U.S. market for long-term care insurance and the role of Medicaid," Working Paper Series in Economics 84, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.

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