Anthony Webb (PI) is a research economist at the Center for Retirement Research at Boston College. The focus of his academic research is on the management of the financial risks households face in retirement. Prominent among these risks is the cost of long-term care. Leora Friedberg (Co-PI) is an Associate Professor at the University of Virginia. Her research has focused on the retirement and saving decisions made by older households. Only a small minority of households chooses to insure against this risk. Previous research has focused on demand side factors that contribute to the low level of long- term care insurance coverage, with particular attention being given to Medicaid crowd- out. But private insurers seem increasingly reluctant to offer long-term care insurance at a price that is balanced against likely costs or indeed, at all. The proposed project has four components. First, building on preliminary studies of single individuals, it will estimate a structural model of married couples'saving and long-term care insurance decisions, using Health and Retirement Study data. The second element will involve solving an intertemporal optimization model in order to calculate willingness to pay for long-term care insurance, given the Medicaid aversion and other preference parameters estimated in the first step. Previous research has focused on single individuals, but married couples face quite different incentives and must consider the implications of entry to long-term care for the financial well-being of the community spouse and also the possible availability of spousal care. The third element will be an analysis of the likely response of households to the CLASS Act long-term care insurance program. We will use the preference parameters recovered from our structural model to forecast willingness to pay of various household types. We will determine who will initiate coverage and at what ages. Using an actuarial model, we will determine the equilibrium level of premiums and coverage under alternative scenarios and the effect on Medicaid costs. The fourth element will be an analysis of the ability of private insurers to meet demand for long-term care insurance. We will investigate the factors that have led insurers to increase premiums and withdraw from the market. We will consider how the CLASS Act might affect premiums and participation rates in the private market. .
This project will formulate and estimate a structural model of married couples' long-term care insurance purchase decisions. It will use the parameter estimates to determine willingness to pay for both private and CLASS Act long-term care insurance. It will construct an actuarial model of the CLASS Act program, and determine equilibrium premiums and participation rates and the effect on Medicaid expenditures. Finally, it will investigate factors contributing to the steep rise in private long-term care insurance premiums and the withdrawal of companies from the market.
