New Evidence on the Risk of Requiring Long-Term Care

Boston College Center for Retirement Research WP 2014-12

54 Pages Posted: 14 Nov 2014 Last revised: 15 Oct 2015

See all articles by Leora Friedberg

Leora Friedberg

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Wenliang Hou

Boston College - Center for Retirement Research

Wei Sun

Renmin University of China

Anthony Webb

Boston College - Center for Retirement Research

Zhenyu Li

Boston College - Center for Retirement Research

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2014

Abstract

The expectation of needing long-term care is an essential input into optimal saving and long-term care insurance decisions. Previous optimization models have used the Robinson (2002) transition probabilities, which have not been systematically updated and which underpredict the use of care while overpredicting the average stay of people who enter care. We develop a new statistical model and use current data to estimate health impairment and care transition probabilities. We show that impairment and care use have declined and that, after incorporating the new transition probabilities, optimal long-term care insurance holdings are much lower and are close to actual holdings.

Keywords: Robinson Model, transition matrix, long-term care, care transition model

Suggested Citation

Friedberg, Leora and Hou, Wenliang and Sun, Wei and Webb, Anthony and Li, Zhenyu, New Evidence on the Risk of Requiring Long-Term Care (November 1, 2014). Boston College Center for Retirement Research WP 2014-12. Available at SSRN: https://ssrn.com/abstract=2523460 or http://dx.doi.org/10.2139/ssrn.2523460

Leora Friedberg (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3225 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Wenliang Hou

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

Wei Sun

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Anthony Webb

Boston College - Center for Retirement Research ( email )

Fulton Hall 550
Chestnut Hill, MA 02467
United States

Zhenyu Li

Boston College - Center for Retirement Research ( email )

Boston, MA
United States

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