When it comes to long-term care, two facts stand out. First, an estimated 70% of people will need such care, which will be costly. And second, most of them refuse to buy insurance to cover it.
The question is, why?
Part of the explanation, no doubt, is that long-term-care insurance is expensive. Some people also may be assuming, incorrectly, that they will qualify for government assistance to help them pay for nursing-home care. Rules are in place to disqualify many who won’t meet the strict conditions required.
But our research suggests that a deeper problem may be that consumers are looking at long-term-care policies in the wrong way; and, just as important, that insurers may be missing opportunities to tweak their products in ways that might address and overcome some of the root causes of those misunderstandings.
For instance, in a study we conducted recently, we found that many people regard long-term-care insurance as having no real value if ultimately the payouts aren’t needed. That is, instead of looking at long-term-care insurance primarily as financial protection, many people think of it as an investment — and a bad one at that. They see the premiums as money that would be wasted if the policy owner ultimately doesn’t need long-term care. They don’t think about the catastrophic losses a policy could help them avoid.
Moreover, our research suggests that some consumers’ rejection of long-term-care insurance is based on what psychologists call “narrow framing,” or people’s tendency to exclude key factors when making decisions. Narrow framing has been found to be common when individuals face complicated decisions — and shopping for long-term-care insurance is certainly one of those instances.
In our study, we looked at a subset of 1,900 respondents in the Health and Retirement Study, a nationally representative survey of Americans
over the age of 50. Based on their answers, we classified respondents according to how likely they were to be narrow framers. We then looked at whether narrow framers had different amounts of long-term-care insurance.
We found that narrow framers were much less likely to have long-term-care insurance, compared with the average person. Specifically, narrow framers were only half as likely to buy such insurance — a gap that persists regardless of respondents’ health status, risk tolerance, marital status and wealth.
While our findings suggest that long-term-care-insurance providers are up against some deep-seated consumer attitudes, we believe that insurers could better position their products in the marketplace by providing more information to consumers regarding the high probability of needing care, and the high costs of such care.
Insurers also could focus more marketing toward adult children whose parents will likely require nursing-home care, since the children are often aware of (and concerned about) the costs and benefits that insurance can provide.
Another approach would be for insurers to emphasize policies that provide benefits in addition to protection for long-term-care costs. For example, more policies could include retirement income payouts or life insurance — as some insurers already do offer.
While adding such features does make long-term-care policies more expensive, they help alleviate concerns about policies being worthless if long-term care were not needed. In fact, many life-insurance companies already take this tack by including a savings component that pays out should the policy owner outlive the policy.
Dr. Mitchell is a professor of insurance and risk management, as well as business economics and public policy at the Wharton School of the University of Pennsylvania. Dr. Gottlieb is an assistant professor of insurance and risk management, as well as business economics and public policy at Wharton. They can be reached at firstname.lastname@example.org.
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