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Insurance with a deductible. A way out of the long term care insurance

Author

Listed:
  • KLIMAVICIUTE Justina,

    (Vilnius University)

  • PESTIEAU Pierre,

    (Université de Liège, CORE, UCLouvain and Toulouse School of Economics)

Abstract

Long-term care (LTC) is one of the largest uninsured risks facing the elderly. In this paper, we first survey the standard causes of what has been dubbed the LTC insurance puzzle and then suggest that a possible way out of this puzzle is to make the reimbursement formula less threatening for those who fear a too long period of dependence. We adopt a reimbursement formula resting on Arrow’s theorem of the deductible, i.e. that it is optimal to focus insurance coverage on the states with largest expenditures. It implies full self-insurance coverage on the states with largest expenditures. It implies full self-insurance for the first years of dependency followed by full insurance thereafter. We show that this result remains at work with ex post moral hazard.

Suggested Citation

  • KLIMAVICIUTE Justina, & PESTIEAU Pierre,, 2019. "Insurance with a deductible. A way out of the long term care insurance," LIDAM Discussion Papers CORE 2019002, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2019002
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2019.html
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    Cited by:

    1. Akira Yakita, 2020. "Fertility decisions of families in an intergenerational exchange model," Review of Development Economics, Wiley Blackwell, vol. 24(4), pages 1447-1462, November.

    More about this item

    Keywords

    long-term care insurance; deductible; Arrow’s theorem; reimbursement rule;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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