Demand for Long-Term Care and Long-Term Care Insurance -- A Human Capital Perspective

The dissertation examines several aspects of the demand for long-term care and long-term care insurance. It develops and applies a comprehensive "full insurance" model analytically in order to empirically estimate the pattern of relationship between private long-term care insurance and other non-marketable alternatives: self-insurance, self-protection, family insurance and safety-net insurance. It therefore allows us to estimate the degree to which demand for private long-term care insurance is substituted or complemented by its non-marketable alternatives. We explicitly explore the crowding out of private long-term care insurance by Medicaid. The role of education and health in the demand for long-term care and long-term care insurance is the primary focus of this study. Individuals with better education and health expect to live longer; they can purchase this insurance product in better health during their late middle age and get rewarded by insurance companies in the form of lower premiums. Medicaid turns out to be an expensive insurance option for them as it carries a high deductible for people with high income and wealth, and an educated person is aware of the potential financial risk associated with future utilization of long-term care services. While conventional wisdom would suggest that the primary effect of education on demand for long-term care insurance operates through an income effect, the paper carefully shows, both theoretically and empirically that it is the knowledge effect and an independent health effect that have the most influence. The spectrum of knowledge effect goes beyond its immediate relevance for the labor market. The paper tries to provide a complex analysis of interactions of different forms of insurances from a broader human capital perspective. The dissertation carefully explores the primary statistically significant determinants of demand for long-term care with the specific focus on the role of private LTCI coverage in determining the choice of mode of care. The dissertation also delves into an empirical investigation to understand the relationship between private insurance coverage and ultimate utilization of long-term care services in different specific caregiving institutional frameworks. The thesis pays explicit attention to different arguments of demand function of private LTCI and future utilization of long-term care. We explore the decision taken by an individual to purchase private long-term care insurance in different strata of wealth distribution. Our comprehensive analysis provides a useful instrument to develop business strategies regarding forecasting future demand for private long-term care insurance for the firms operating in long-term care insurance industry. Our analysis can also be utilized to evaluate implications of any changes in public policies.