Seniors Overestimate Their Likelihood of Going to a Nursing Home
June 18, 2014 1 Comment
Yesterday, I was helping someone think through options to care for their parent who has dementia and recently suffered a serious fall. This person’s parent does not have private long term care (LTC) insurance (most don’t) and my friend said that “this must be due to the fact that elders underestimate their likelihood of moving to a nursing home”, the most expensive LTC setting.
The simple comparison of the stated probability that a person who was age 65+ would move to a nursing home within 5 years was higher than the actual probability (for full sample, mean perception 0.14 v observed 0.08; see first column of p values).
Private LTC insurance is rare in spite of the elderly over-estimating their likelihood of needing such care. Why?
- No clear risk signal for need of LTC when young
- myopia about the need for and cost of LTC; so people don’t understand and/or face up to the risk
- 3 in 10 of those achieving age 65 will not use LTC, so if everyone bought private policies, a substantial minority would never claim benefits from their policy
- Medicaid coverage of NH care likely crowds out the purchase of private coverage
- A substantial proportion of the population has insufficient income to pay LTC insurance premiums, and/or insufficient wealth to “protect” from the cost of LTC
- The structure of the policies themselves lead to rational non-purchase: (benefits denominated in dollars per day and not care, which is risky especially when insuring against something that is probabilistically a long way off; history of premium increases when claims experience is higher than predicted; denial of applications).
Keep in mind the paper comparing stated v actual probabilities was done in people age 65 and over. So, if young people are myopic and wait too late to purchase, it is too late. However, there are many rational reasons that people don’t purchase LTC insurance.
Donald H. Taylor, Jr., Jan Ostermann, S. Will Acuff, Truls Ostbye. Do Seniors Understand Their Risk of Moving to a Nursing Home? Health Services Research 2005;40(3):811-828.
Donald H. Taylor, Jr. Robert Cook-Deegan, Susan Hiraki, Scott Roberts, Dan G. Blazer, Robert C. Green. How Genetic Testing for Risk of Alzheimer’s Disease Could Affect Long Term Care Insurance. Health Affairs 2010;29(1):102-108.