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Why Don't People Buy Long-Term-Care Insurance?

Institute of Gerontology, Wayne State University, Detroit, Michigan.

Address correspondence to Anne Theisen Cramer, Institute of Gerontology, Wayne State University, 87 East Ferry Street, Detroit, MI 48202. E-Mail: atcramer{at}wayne.edu

Objectives. The objective of this article was to assess the determinants of an individual's decision to purchase long-term-care (LTC) insurance. This article focuses on the decision to purchase a new policy as opposed to renewing an existing policy. This study gave special consideration to the role of policy price, the savings associated with buying a policy now as opposed to later, the purchaser's education, and the purchaser's income.

Methods. Using data from the 2002 Health and Retirement Survey, we estimated logistic regressions to model consumer decisions to purchase LTC insurance. We explored several alternative measures of the price of a policy.

Results. Price was a significant determinant in decisions to purchase coverage. The demand for coverage, however, was price inelastic, with elasticities ranging from –0.23 to –0.87, depending on the specification of the model. The education level and income of the purchaser were also important.

Discussion. This analysis provides the first estimates of price elasticity of demand for LTC insurance. The finding that demand is very price inelastic suggests that state initiatives that effectively subsidize premiums as a way of stimulating purchases are likely to meet with very limited success in the present environment.