Social and Private Long Term Care Insurance with Variable Altruism

This paper studies the design of an optimal public scheme for long term care (LTC) in a setting where LTC services are also provided by the market and the family. Private insurance offers fixed reimburse-ment that is conditioned on the loss of autonomy but not on the size of the actual loss. Family solidarity is not uniform. Some parents can count on their children’s altruism; some others cannot. In most cases asymmetric information may induce some families to hide their altru-ism and their resources and this sizeably affects the structure of social insurance. We use two non linear instruments: a tax on children’s earnings and a subsidy on parents ’ purchase of private insurance