Long‐Term Care Insurance With Family Altruism: Theory and Empirics

Abstract This article studies long‐term care (LTC) insurance in the presence of family altruism. We first explore whether family solidarity affects the application of Arrow's (1963) deductible theorem, shown to apply in models without family in earlier work. We find that Arrow's theorem generally holds, but departures from the standard model exist. Our analysis highlights complex interplay between parents’ insurance and children's aid, implying that some intuitive conjectures are not always verified. For instance, while one expects deductible to increase with children's altruism, this is unambiguously confirmed only under certain conditions. We then study empirically the relation between LTC insurance and children's altruism using data from “Health and Retirement Study” (HRS).