Estate recovery and long‐term care insurance. (23rd February 2020)

• Record Type: Journal Article
• Authors: Courbage, Christophe; Montoliu‐Montes, Guillem
• Other Names: Amir Rabah guestEditor.; Cremer Helmuth guestEditor.; Lahmandi‐Ayed Rim guestEditor.
• Is Part Of: Journal of public economic theory. Volume 22:Number 4(2020)
• Page Start: 949
• Page End: 972
• Publication Date: 2020-02-23
• Subjects: Economic policy -- Periodicals; Finance, Public -- Periodicals; 338.9005
• DOI: 10.1111/jpet.12428
• Languages: English
• ISSNs: 1097-3923

Abstract

Abstract: Estate recovery is a policy under which the state recovers part of long‐term care (LTC) subsidies from the estates of deceased beneficiaries. This paper studies the effect of estate recovery on LTC insurance demand. This effect strongly relies on the bequest motive since the main purpose behind purchasing LTC insurance is to protect bequests from the financial costs of LTC. We find that the impact of estate recovery on LTC insurance depends on the level of parental bequests and on whether and how the parent anticipates the child's preferences with respect to informal care. More specifically, we show that estate recovery encourages the parent to purchase LTC insurance when his child is considered selfish or to like providing care. However, this policy could provide disincentives to LTC insurance purchase by the parent if his child is considered to dislike providing informal care. Our results also show that estate recovery reduces and may even eliminate public support crowding out of private LTC insurance demand. Finally, we characterize the welfare implications of financing LTC public support by estate recovery.