Long-term care and myopic couples

The paper proposes a theoretical model of long-term care (LTC) issues in the context of elderly spouses and studies public LTC policy optimal in that case. In particular, it focuses on myopia about the negative health effects of caregiving burden and, relatedly, on the interaction between this burden and the two spouses’ insurance coverage. Myopia results in an inefficiently high caregiving effort of the woman, who is the caregiver in the model. While under full information a linear caregiving tax can implement the first-best, unobservability of the woman’s caregiving might require the use of LTC insurance subsidies. Interestingly, myopia about negative caregiving effects implies a subsidy on the man’s but a tax on the woman’s insurance premium. Paradoxically, insurance against the woman’s LTC risk may be at odds with the protection of her health, which questions the popular tendency to emphasize more the importance of LTC insurance for women than for men.