Does Home Equity Affect Decisions on Long-Term Care Insurance Purchases? Evidence From the United States

Research on Aging
Richard A HirthKenneth M Langa

Abstract

The low uptake of private long-term care insurance (LTCI) by the elderly in the United States, despite visible risks, has left economists puzzled. Prior studies have hypothesized that home equity can be a substitute for LTCI and hence may partly explain the low uptake. We test this hypothesis empirically. We utilize exogenous variation in house prices at the level of the metropolitan statistical area (MSA) as an instrument for home equity for individuals residing in that MSA and data from the Health and Retirement Study. In the most robust specifications, we find no evidence that the elderly change their decision on LTCI based on variation in their home equity, and even specifications requiring stronger identification assumptions imply only small effect magnitudes. Home equity as a substitute for LTCI does not appear to be a major contributing factor to low LTCI take up.

References

Dec 2, 2009·The Journal of Economic Perspectives : a Journal of the American Economic Association·Jonathan Gruber, Helen Levy
Sep 1, 2006·The American Economic Review·Amy Finkelstein, Kathleen McGarry
Jun 4, 2011·Inquiry : a Journal of Medical Care Organization, Provision and Financing·Yong Li, Gail A Jensen
Dec 2, 2015·Management Science·Keith GambleDavid Bennett

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