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Mandatory aged care insurance: a case for Australia

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Paolucci, Francesco and Przemyslaw, M. Sowa, and García Goñi, Manuel and Erga, Henry (2015) Mandatory aged care insurance: a case for Australia. Ageing and Society, 35 (2). pp. 231-245. ISSN 0144686X

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Official URL: http://dx.doi.org.bucm.idm.oclc.org/10.1017/S0144686X13000767



Abstract

This paper assesses the feasibility and welfare-improving potential of an insurance market for aged care expenses in Australia. As in many other countries, demographic dynamics coupled with an upward trend in costs of personal care result in consumer co-contributions imposing a risk of expenses that could constitute a significant proportion of lifetime savings, in spite of the presence of a government-run aged care scheme. We explore issues around the development of an insurance market in this particular setting, considering adverse selection, moral hazard, timing of purchase, transaction costs and correlation of risks, as well as such contextual factors as longevity and aged care cost determinants. The analysis indicates aged care insurance is both feasible and welfare-enhancing, thus providing a gainful alternative to the aged care reform proposed by the Productivity Commission in 2011. However, while the insurance market would benefit the ageing Australian population, it is unlikely to emerge spontaneously because of the problem of myopic individual perceptions of long-term goals. Consequently, we recommend regulatory action to trigger the market development.


Item Type:Article
Uncontrolled Keywords:Aged care insurance; Long-term care financing; Australia; Productivity Commission
Subjects:Social sciences > Social service > Aged
Social sciences > Economics > Insurance
ID Code:60643
Deposited On:26 May 2020 11:10
Last Modified:26 May 2020 11:10

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