Displaced, disliked and misunderstood

With aging populations, the role of private insurance in financing late-in-life risks is likely to grow. Yet, demand for long-term care insurance (LTCI) and life annuities (hereafter annuities) is very limited and lags behind economic projections. This systematic literature review surveys the large number of theoretical and empirical studies analyzing this contradiction. We examine the LTCI and annuity puzzles separately and show which factors limit demand for insurance against both late-in-life risks. Our systematic search rendered 3,945 unique hits and findings of 187 studies were integrated in our analyses. Results hereof suggest that holding of both insurance products is systematically impeded by substitution by social security, adverse selection, nonstandard preferences and limited rationality due to low financial literacy and risk unawareness. Furthermore, insurance holding is concentrated among wealthier and subjectively healthier individuals. A comprehensive approach addressing all four reasons for low uptake may increase insurance holding most effectively and may particularly empower people with lower socio-economic status to make well-informed decisions

The impact of copayments on mental healthcare utilization: a natural experiment

Empirical evidence suggests that people are fairly sensitive to cost sharing arrangements in ambulatory mental healthcare. However, pure cost sharing effects are typically hard to measure due to the presence of adverse selection effects. In this paper, we examine the impact of cost sharing on mental healthcare utilization in the context of mandatory health insurance where adverse selection is absent. Using a large proprietary dataset of a Dutch private health insurer, we examine to what extent a new copay- ment scheme for adult mental healthcare changed health- care utilization. We exploit the fact that non-adults are exempted from copayments. First, we compare changes in utilization among adults and non-adults using t tests and a difference-in-difference analysis. Second, we highlight differential changes in mental healthcare utilization by treatment (duration and type of mental illness) and indi- vidual characteristics (gender and socioeconomic status). Third, we evaluate to what extent anticipatory behavior occurred pending the introduction and subsequent repeal of the new copayment scheme. Our results show a strong and significant (p \ 0.01) decrease in outpatient secondary mental healthcare utilization among adults following the introduction of copayments, which is absent among non- adults. This decrease is concentrated among treatments for less severe mental illnesses. Furthermore, the utilization patterns suggest the presence of anticipatory behavior

Who can see it coming?:Demand‐side selection in long‐term care insurance related to decision‐making abilities

Despite the growing demand for long-term care (LTC), the uptake of private LTC insurance (LTCI) is low and even declining in the United States. One reason is the complexity of LTCI decisions. Researchers have therefore suggested to support decision-making abilities. This paper shows, however, that such support would not unambiguously enhance functioning of the LTCI market. We analyze whether selection arises from two correlated but different decision-making abilities at old age, education and numeracy, and interactions thereof with private information. Using historical data from the Health and Retirement Survey we find that education generates adverse selection, which is only partially offset by advantageous selection due to numeracy. In addition, individuals with greater decision-making abilities make better LTCI choices, amplifying selection by education and numeracy. This points at a trade-off between decision simplicity and selection in insurance markets and suggests other steps are needed to enhance the performance of private LTCI markets