Long Term Care Risk Misperceptions

41 Pages Posted: 8 Aug 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: June 18, 2018

Abstract

This paper reports survey evidence on long-term care (LTC) risk misperceptions and demand for long-term care insurance (LTCI) in Canada. LTC risk misperceptions is divided into three different risks: needing help for at least one activity of daily life, needing access to a nursing home, and living to be 85 years old. We contrast subjective (i.e. stated) probabilities with actual probabilities for these three dimensions. We first provide descriptive statistics of how objective and subjective probabilities differ and correlate to each other. Second, we study cross-correlations between different types of risks. We then study how risk misperceptions correlate with individual characteristics, and evaluate how misperceptions affect intentions and actual purchase of LTCI. Our conclusions are two-fold. First, we find that most subjects are not well informed about their individual LTC risks, making it difficult for them to take the correct LTCI decisions. Second, and even though misperceptions explain an individuals actual or his intentions to take-up LTCI, misperceptions are unlikely to explain the poor take-up rate of LTCI in our sample.

Keywords: long-term care insurance puzzle, disability, misperceptions, subjective probability

JEL Classification: D150, D910, I130

Suggested Citation

Boyer, M. Martin and De Donder, Philippe and Fluet, Claude-Denys and Leroux, Marie-Louise and Michaud, Pierre-Carl, Long Term Care Risk Misperceptions (June 18, 2018). CESifo Working Paper Series No. 7100, Available at SSRN: https://ssrn.com/abstract=3228386

M. Martin Boyer

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 (Contact Author)

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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