Long-Term Care: Is There Crowding Out of Informal Care, Private Insurance as Well as Saving?

Publicly provided long-term care (LTC) insurance with means-tested benefits is suspected to crowd out either private LTC insurance (Brown and Finkelstein 2008. The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market. American Economic Review 98(3):1083-102), private saving (Gruber and Yelowitz 1999. Public Health Insurance and Private Saving. Journal of Political Economy 107(6):1249-74; Sloan and Norton 1997. Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-term Care Insurance Market. Journal of Risk and Uncertainty 15:201-19), or informal care (Pauly 1990. The Rational Non-purchase of Long-term Care Insurance. Journal of Political Economy 95:153-68; Zweifel and Strüwe 1998. Long-term Care Insurance in a Two-generation Model. Journal of Risk and Insurance 65(1):13-32). This contribution predicts crowding-out effects for both private LTC insurance and informal care on the one hand and private saving and informal care on the other. These effects result from the interaction of a parent who decides about private LTC insurance before retirement and the amount of saving in retirement and a caregiver who decides about effort devoted to informal care. Some of the predictions are tested using a recent survey from China