06.05.25

Do misperceptions about Medicare coverage explain low demand for long-term care insurance?

Executive Summary
Research Dialogue
Insights Report

The need for long-term care is rising, posing a significant financial risk for elderly individuals and their families.

Summary

More than half of Americans aged 65 will likely need long-term care services at some point in their lifetime, and they’ll spend an average of almost $140,000 on such services. Yet, only 14% of people age 60 and over have private long-term care insurance, and about one-third of all long-term care expenses in the U.S. are paid for out of pocket. This paper explores the extent to which misperceptions about Medicare, which doesn’t cover extended use of long-term care services, limit the size of the private long-term care insurance market.

Key insights

  • There’s a 17.6% increase in the long-term care insurance coverage rate at age 65, when many people start to have firsthand experiences with Medicare.
  • While more than 30% of individuals incorrectly believe Medicare covers extended long-term care services, the proportion with correct knowledge increases significantly for those age 65.
  • During the process of enrolling in Medicare, many individuals appear to learn that Medicare doesn’t cover long-term care services, so they purchase private long-term care insurance.

Campaigns that increase knowledge of public insurance coverage limitations could help individuals and families with insurance decisions and planning how to finance long-term care cost.

Methodolgy

The researchers use data from the Health and Retirement Study, the Survey of Long-term Care Awareness and Planning, and a survey based on the RAND American Life Panel to assess participant knowledge of Medicare coverage limitations and demand for private long-term care insurance.

Long-term care insurance coverage rates vary by age; higher rates for those 65+ across HRS, STLCAP, and ALP surveys (10-28% coverage).

Authors

Padmaja Ayyagari

University of South Florida

Daifeng He

Swarthmore College

Ellen B. Magenheim

Swarthmore College

Jingxin Nie

University of South Florida

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