Uncertain altruism and the provision of long term care

Abstract

Helmuth Cremer and Pierre Pestieau gratefully acknowledge nancial support from the Chaire "Marché des risques et creation de valeur " of the FdR/SCOR. We thank Grégory Ponthière for comments on an earlier version of this paper. AbstractThis paper studies the role of private and public long term care (LTC) insurance programs in a world in which family assistance is uncertain. Benets are paid in case of disability but cannot be conditioned (directly), due to moral hazard problems, on family aid. Under a topping up scheme, when the probability of altruism is high, there is no need for insurance. At lower probabilities, insurance is required, thought not full insurance. This can be provided either privately or publicly if insurance premiums are fair, and publicly otherwise. Moreover, the amount of LTC insurance varies negatively with the probability of altruism. With an opting out scheme, there will be three possible equilibria depending on the children's degree of altruism being "low," "moderate," or "very high". These imply: full LTC insurance with no aid from children, less than full insurance just enough to induce aid, and full insurance with aid. Fair private insurance markets can support the rst equilibrium, but not the other two equilibria. Only a public opting-out scheme can attain them by creating incentives for self-targeting and ensuring that only dependent parents who are not helped by their children seek help from the government.JEL classication: H2, H5.

Long‐term care policy with lazy rotten kids

“…Knowing the foundation of family assistance is very important to see how it will react to the emergence of private or public schemes of LTC insurance. For example, the introduction of LTC social insurance is expected to crowd out family solidarity based on pure altruism (e.g., Cremer, Gahvari, & Pestieau, ). On the other hand, where “solidarity” is based on strategic exchanges crowding out is expected to be less significant.…”

“Honor thy father and thy mother” or not: uncertain family aid and the design of social long term care insurance

“…The question of LTC provision under uncertain altruism has previously been studied by Cremer et al (2014Cremer et al ( , 2017. Our paper is different from theirs in two major respects.…”

“…5 Different LTC schemes may coexist within a given country; although, in practice, most are of the TU type. 6 These include (possibly means-tested) cash transfers like APA (Allocation Personalisée d'Autonomie) in France, the "Pflegegeld" in Germany, and "Assegno d'Accompagnamento" in Italy. They also include in-kind transfers like "meals on wheels" or formal home care services provided for free, or at subsidized rates, in most European countries.…”

The Public Economics of Long‐term Care. A Survey of Recent Contributions

“…Cremer et al. (, ) and Canta et al. () study the role of private and public insurance programs in a world in which family assistance is uncertain.…”