Long‐Term Care Insurance Purchase Patterns

• Author: Sandra G. Gustavson,Helen I. Doerpinghaus
• Published date: 01 September 2002
• Date: 01 September 2002
• DOI: http://doi.org/10.1111/1098-1616.00008

©Risk Management and Insurance Review, 2002, Vol. 5, No. 1, 31-43

LONG-TERM CARE INSURANCE PURCHASE PATTERNS

Helen I. Doerpinghaus

Sandra G. Gustavson

ABSTRACT

Given the aging population and high cost of long-term care, many Americans

are concerned about financing long-term care services. Despite this concern, pri-

vate long-term care insurance policy sales have experienced slow growth. On

average only about 7 percent of the population aged 65 and older has long-term

care insurance, but this percentage varies greatly across the states. In this study

we test hypothesized relationships between purchase of long-term care insur-

ance and various explanatory factors. We provide evidence that state Medicaid

nursing home expenditure levels and the relative sizes of the elderly population

and the nursing home population are significant explanatory factors of purchase

rates. We find no evidence that public–private partnership regulation,the qual-

ity of available facilities, or agent marketing controls affect purchase. Findings

of the study are useful to insurers, legislators, regulators, and others involved

in the public policy debate about financing long-term care.

INTRODUCTION

Given the aging of the population, the rising cost of long-term care, and continuing

efforts to reduce Medicaid and Medicare expenditures, the sale of private long-term

care insurance in the United States has been notably limited. Kemper and Murtaugh

(1991) estimate that 43 percent of the elderly will use nursing home care, that over

half of those in nursing homes will stay for at least one year, and that 20 percent will

remain five years or longer. Nursing home costs range from $30,000 to $65,000 per year,

and patients and their families pay a third of out-of-pocket costs since Medicare and

private Medicare supplement policies do not routinely cover extended long-term care.

The only government program routinely covering custodial long-term care is Medic-

aid, which is available only to the categorically eligible poor. However, Coronel (1998)

reports that fewer than 5 million long-term care policies had been purchased as of

December 1996, compared with 140 million ordinary individual life insurance policies

Helen I. Doerpinghaus is associate professor in the Moore School of Business at the University

of South Carolina. Sandra G. Gustavson is associate dean for faculty and research in the Terry

College of Business at the University of Georgia. The authors gratefully acknowledge the valuable

assistance of Dr. William T. Moore, University of South Carolina. The authors thank Tong Yu,

University of Rhode Island, and Ginny White, University of Georgia, for assistance with data

collection and analysis.

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