Why is the market for long-term care insurance so small?

Long-term care represents one of the largest uninsured financial risks facing the elderly in the United States. We present evidence of supply side market failures in the private long-term care insurance market. In particular, the typical policy purchased exhibits premiums marked up substantially above expected benefits. It also provides very limited coverage relative to the total expenditure risk. However, we present additional evidence suggesting that the existence of supply side market failures is unlikely, by itself, to be sufficient to explain the very small size of the private long-term care insurance market. In particular, we find enormous gender differences in pricing that do not translate into differences in coverage, and we show that more comprehensive policies are widely available, if seldom purchased, at similar loads to purchased policies. This suggests that factors limiting demand for insurance are also likely to be important in this market. Our evidence also sheds light on the likely nature of these demand-side factors.