A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle

CRREP working paper serie 2018-06

36 Pages Posted: 10 Jul 2018

See all articles by M. Martin Boyer

M. Martin Boyer

HEC Montreal - Department of Finance

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Claude Fluet

Université Laval

M.‐L. Leroux

University of Quebec at Montreal (UQAM)

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE); RAND Corporation, Labor and Population; IZA Institute of Labor Economics; Netspar

Date Written: March 01, 2018

Abstract

We examine the different hypotheses which have been put forward to explain the low demand for long-term care insurance using the results from a survey of 2000 Canadians that was conducted in the autumn of 2016. Defining the natural market of long-term care insurance buyers as the one catering to individuals aged between 50 and 70, we find that a remarkable proportion of this natural market has never been approached to purchase such protection. We estimate that approximately 60% of this natural market is currently under-served. After eliminating risk perception and demand side explanations for the low market penetration of long-term care insurance, we conclude that supply-side factors and the crowding-out by government programs are the most likely culprits in explaining the low proportion of Canadians that purchase LTC insurance from private providers.

Keywords: Long-term care puzzle, Risk perceptions, Supply and demand of insurance, Government programs

JEL Classification: G02, G12, C14

Suggested Citation

Boyer, M. Martin and De Donder, Philippe and Fluet, Claude-Denys and Leroux, Marie-Louise and Michaud, Pierre-Carl, A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle (March 01, 2018). CRREP working paper serie 2018-06, Available at SSRN: https://ssrn.com/abstract=3211419 or http://dx.doi.org/10.2139/ssrn.3211419

M. Martin Boyer (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Claude-Denys Fluet

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada
1-418-656-2131, ext 3290 (Phone)

Marie-Louise Leroux

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Pierre-Carl Michaud

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE) ( email )

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

RAND Corporation, Labor and Population ( email )

Santa Monica, CA 90407-2138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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