Family Structure and Long-Term Care Insurance Purchase

Individual lack of private LTC insurance (LTCI) is a major policy concern because it leads to high public expenditures on LTC through Medicaid and is associated with high poverty rates in old age. Demographic change underscores the urgent need to find policy solutions, as the need for LTC will inevitably increase in the next few decades while at the same time substitutes for formal long-term care, informal caregivers, are likely to decrease.  A crucial but notably overlooked factor in existing empirical studies of LTCI has been the influence of family structure and the availability of informal care.  It has long been assumed that family structure and potential sources of informal care play a large role in the purchase decisions for long-term care insurance, but current evidence is inconclusive.  Our study examines the relationship between family structure, informal care availability, and LTCI purchase and addresses the major limitations of the prior literature by 1) using a long panel of data from the Health and Retirement Study (HRS) (1996-2010), enabling longitudinal modeling and the examination of both static and dynamic attributes of the purchase decision; 2) paying particular attention to nuanced measurement of family structure and testing the possibility of heterogeneous effects; and 3) employing data that uses consistently worded LTCI questions less prone to measurement error than those available in earlier studies.  We focus on initial purchase of LTCI and not repurchases, due to concerns about the quality of the repurchase variables.  In addition to reflecting what others have found about wealth and education increasing LTCI purchase, we find that family factors from one’s own generation, particularly about one’s spouse, as well as factors from the younger generation, such as having one’s own children and number of stepchildren, influence LTCI purchase.  Dynamic factors, such as newly joining a higher asset quartile, or having a daughter move closer by, also influence the purchase of LTCI.  The magnitude of the family effects—between 1 and 2 percentage points— are generally smaller than the effect of risk aversion or tax incentives found in other papers .  We find heterogeneous effects of family structure by wealth and distance.  For example, having a child who is low income or a daughter living close by decreases the likelihood of LTCI purchase.