ADVERSE SELECTION, BEQUESTS, CROWDING OUT, AND PRIVATE DEMAND FOR INSURANCE - EVIDENCE FROM THE LONG-TERM-CARE INSURANCE MARKET

Adverse selection, moral hazard, and crowding out by public insurance have all been proposed as theoretical reasons for why the market for p rivate long-term care insurance has been slow to evolve in the U.S. Us ing national samples of the elderly and near elderly, this study inves tigates which is most important. The data contain direct measures of r isk aversion, expectations of future nursing home use and living to ol d age, and the bequest motive. For both groups, we find evidence of ad verse selection, and for the elderly, crowding out of private long-ter m care insurance by Medicaid. However, we do not find that demand for such insurance is motivated either by bequest or exchange motives.