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Student Name: Angie Ahmadi
Graduate Level: Ph.D
Field of Study: Economics
Committee Chair: Paul Sullivan
Committee Members: Nathan Larson & Sung Ah Bahk
Outside Reader: Aparna Soni
Date of Presentation: May 10, 2022
Time of Presentation: 1 PM EST
Location: Zoom & Kreeger 100
Title of Dissertation: Essays on Long-Term Care Insurance: Risk Misperceptions, Suboptimal Timing, and Racial Disparities
This dissertation focuses on long-term care in old age and the low ownership of private long-term care insurance (LTCI). Older adults in the US face significant risk of needing long-term care services. Despite the risk, most Americans never attempt to insure against it, and those who do tend to apply late in life when they are likely to be rejected. The first essay in this dissertation builds a quantitative equilibrium model to study consumers’ decision about when to buy LTCI in the presence of uninsurability risk. The model evaluates how much of the delay in purchase can be explained by risk misperceptions and limited information. I formulate the problem as a three-period model where consumers may buy insurance in a competitive market based on their observable risk characteristics during the first two periods in order to insure against nursing home risk in the third period. If they delay purchase, they risk becoming uninsurable. I estimate the model using the Health and Retirement Study. The model successfully reproduces the low ownership rates and timing of purchase across all income quintiles in the data. I find that under-estimation of LTC costs and limited information about underwriting and rejection lead to 42% lower than optimal purchase rate, and cause 29% of early buyers to delay their purchase. The sub-optimal behavior is particularly pronounced among the middle-income consumers for whom stakes are highest, since the poor are protected by Medicaid and the rich can self insure.
The second essay studies the patterns of long-term care risk and its insurance purchase across racial and ethnic groups in the US. By 2050, the population of those 85 and older is projected to triple and the share of Blacks and Hispanics in this population is expected to increase to over 40%. A better understanding of risk and insurance ownership across different segments of the aging population is particularly important, given this increasing racial and ethnic heterogeneity in older adults. Using the Health and Retirement Study, this chapter studies racial disparities in late-in-life health outcomes and estimates the risk of having a nursing home stay over lifetime across race and ethnicity. It finds that Blacks and Hispanics have a lower risk of entering a nursing home than Whites. The paper also examines differences in the likelihood of LTCI purchase across different racial and ethnic groups. The findings suggest that once demographic, socioeconomic, and family characteristics are accounted for, non- Whites are not less likely to buy insurance.