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Moral hazard and long-term care insurance


In private long-term care insurance markets, moral hazard is central to pricing and long-run robustness of the market, yet there is remarkably little evidence on the extent to which moral hazard is present in long-term care insurance. We use Health and Retirement Study data from 1996 to 2014 to assess moral hazard in nursing home and home care use in private long-term care insurance, employing a combination of propensity score matching and instrumental variables approaches. We find evidence of significant moral hazard in home care use and a potentially meaningful but noisy effect on nursing home use. Policymakers designing incentives to promote private long-term care insurance should consider the consequences of moral hazard.

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  1. Starting with the 194,269 observations in waves 3 to 12, 9124 observations were dropped due to Veterans Administration coverage. Among the remaining observations, 17,024 observations were dropped due to Medicaid; 5560 observations were dropped due to age; 3637 observations were dropped due to missing LTCI status; 55,454 observations were dropped due to missing lagged tax itemisation status; 0 observations were dropped due to negative income; 13,929 observations were dropped due to negative financial assets; 489 observations were dropped due to negative total assets; and 5288 observations were dropped due to more than USD 2 M total assets.

  2. Total household income includes individual earnings, household capital income, pensions, Social Security Disability Insurance payments, retirement income, unemployment/workers’ compensation, government transfers, and other income. Household financial assets include net value of stocks, mutual funds, investment trusts, bonds and bond funds, bank accounts, certificates of deposit, Treasury bills, and government bonds less debt.


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We are grateful for funding from the National Institute on Aging, R01AG041108.

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Correspondence to R. Tamara Konetzka.

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Fig. 1
figure 1

Sample selection

Fig. 2
figure 2

Balance on covariates before and after matching

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Konetzka, R.T., He, D., Dong, J. et al. Moral hazard and long-term care insurance. Geneva Pap Risk Insur Issues Pract 44, 231–251 (2019).

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  • Moral hazard
  • Long-term care insurance
  • Ageing
  • Nursing homes
  • Home care