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International Journal of Health Economics and Management

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01-06-2017 | Research Article

Means-tested public support and the interaction between long-term care insurance and informal care

Authors: Jean-Marc Bascans, Christophe Courbage, Cornel Oros

Published in: International Journal of Health Economics and Management | Issue 2/2017

Abstract

This paper investigates theoretically how the structure of means-tested public long-term care (LTC) support influences the relationship between LTC insurance and informal care. Three types of public support encountered in various means-tested LTC schemes are examined. First, the level to be considered for means-testing only takes into account the level of wealth of the recipient without considering the cost of LTC or the possible insurance benefits. Second, the public support also considers the LTC needs of the recipient. Third, the means-test structure takes into consideration insurance benefits as well. Our results show that the optimal levels of insurance and informal care as well as their relationship are strongly influenced by the ways means-tested public support for LTC is structured, which have important implications in terms of public policy for the financing of LTC needs.

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For a comprehensive review of the factors explaining the limited development of LTC insurance markets, we refer the readers to Brown and Finkelstein (2009).

We implicitly assume that elderly parents in need of assistance would first turn to informal care services and then formal care would adapt accordingly. However, we do not take into account any difference in quality between formal and informal LTC in our model.

This relation finds strong support empirically (see e.g. Van Houtven and Norton 2004; Bolin et al. 2007; Bonsang 2009; Vilaplana Prieto and Jiménez-Martín 2015).

In the case of multiple siblings, it seems realistic to assume that the parent allocates, as far as he or she can, the bequest to the child who provides care.

The second order condition is satisfied: \(V_{II} =\frac{\delta V^{2}}{\delta ^{2}I}<0\).

We do not take into consideration the case where \(A>B\) and we suppose that the final wealth of the parent cannot be higher if dependent than if not.

The second order condition is satisfied: \(\bar{V} _{ee} =\frac{\delta \bar{V} ^{2}}{\delta ^{2}e}<0\).

If the level of public support b is independent of wealth, we obtain exactly the same results regarding the relationship between the optimal levels of insurance and informal care.

Note that if LTC expenditures are not considered to means-test, the results are not modified.

Assuming a negative definite Hessian matrix implies that the slope of \(e^{*}\left( I \right) \) in absolute value is superior to the one of \(I^{*}\left( e \right) \).

This can be also proved by evaluating Eq. (16) at the initial level of optimal informal care \(\left( \left. {\frac{{\delta \bar{V} }}{{\delta e}}} \right| _{{e_{{{\textit{passive altruism}}}}^{*} }} = pa^{\prime }\left( e \right) > 0\right) \).

When \(s=0\), the optimal level of informal care is given by: \(a^{\prime }\left( {e^{*}} \right) =\theta \bar{u}^{{\prime }}\left( {A_C } \right) .\)

As a measure of the risk aversion, the DARA (Decreasing Absolute Risk Aversion) hypothesis indicates that the coefficient of absolute risk aversion decreases with the level of wealth.

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Title: Means-tested public support and the interaction between long-term care insurance and informal care
Authors: Jean-Marc Bascans
Christophe Courbage
Cornel Oros
Publication date: 01-06-2017
Publisher: Springer US
Published in: International Journal of Health Economics and Management / Issue 2/2017
Print ISSN: 2199-9023
Electronic ISSN: 2199-9031
DOI: https://doi.org/10.1007/s10754-016-9206-4

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Means-tested public support and the interaction between long-term care insurance and informal care

Abstract

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