It is a puzzle why so few people purchase long-term care insurance.  Although long-term care (LTC) is one of the biggest financial risks facing the elderly today, very few—13% of current 65 year olds—are insured against this risk.  In all, $37.4 billion was spent out-of-pocket on LTC in 2005 in the US.¹  Although factors such as Medicaid crowd-out and high administrative costs in a small market undoubtedly play a role, no single factor has been found to dominate. Individual lack of private LTC insurance (LTCI) is a major policy concern because it leads to high public expenditures on LTC through Medicaid and is associated with high poverty rates in old age. Demographic change underscores the urgent need to find policy solutions, as the need for LTC will inevitably increase in the next few decades. 

Our objective is to determine the effect of long-term care insurance ownership on choices between family-provided informal care and paid long-term care services.   We the extent to which long-term care insurance alters both expectations about and actual LTC use after onset of disability.  We examine the timing and order in which informal and/or formal long-term care are accessed, including how LTCI affects the duration spent in a given LTC state.  We find that LTCI significantly changes beliefs about future LTC use immediately, and that its effect is heterogeneous based on family structure.