We study the role and the design of long-term care insurance programs when informal care is uncertain; with and without active actuarially-fair private insurance markets against dependency. Three types of public insurance policies are considered: (1) a topping-up scheme, (2) an opting-out scheme, and (3) an opting-out-cum-transfer scheme which combines elements of the first two. A topping-up scheme can never do better than private insurance; opting out and opting-out-cum-transfer schemes can because they provide some insurance against the default of informal care. Long-term care policies have different implications for crowding out. A topping-up policy entails crowding out at both intensive and extensive margins and an opting-out policy leads to crowding out solely at the extensive margin. The opting-out feature of an opting-out-cum-transfer policy too leads to crowding out at the extensive margin, but its transfer element leads to crowding out at the intensive margin and crowding in at the extensive margin.
ASJC Scopus subject areas
- Social Sciences (miscellaneous)
- Economics and Econometrics