The risk protection and redistribution effects of long-term care co-payments

Bram Wouterse, Arjen Hussem, Albert Wong

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Abstract

Co-payments for long-term care (LTC) can impose a substantial financial burden on the elderly. How this burden is distributed across income groups depends on the design of the co-payment. We estimate the lifecycle dynamics of LTC using Dutch administrative data. These estimates are inputs in a stochastic lifecycle decision model. Using the model, we analyze the welfare effects of the Dutch income- and wealth-dependent co-payment system and compare it to alternative systems. We find that the Dutch co-payment system redistributes income to low-income groups, who use the most care over their life but contribute the least co-payments, from high-income groups, who pay the most. Moreover, the Dutch system protects the middle-income groups relatively well against financial risk: although alternative co-payment systems hardly affect these groups average payments, they induce welfare losses of 2% to 4% due to an increased risk of very high co-payments.

Original languageEnglish
Article number89
Pages (from-to)161-186
Number of pages26
JournalThe Journal of Risk and Insurance
Volume89
Issue number1
DOIs
Publication statusPublished - Mar 2022

Bibliographical note

Funding Information:
This study was partly funded by the Netspar project ?Optimal saving and insurance for old age: The role of public long-term care insurance.??We thank two anonymous reviewers, Casper van Ewijk, Max Groneck, Neha Bairoliya, Rosella Levaggi, Jakob Everding, Joost Wammes, and Rob Aalbers for comments on earlier versions of the paper. We also thank the participants of the Netspar Pension Day, the Netspar Pension Workshop, ASHEcon, EUHEA, the Italian Health Econometrics Workshop and the European Workshop on Health Econometrics. We thank Michelle Galloway for help in copy editing the text.

Publisher Copyright:
© 2021 The Authors. Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association.

Research programs

  • EMC NIHES-05-63-03 Competition

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