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EBRI: LTCI Boosts Overall Retiree Spending

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Long-term care insurance (LTCI) may really give LTCI holders the peace of mind to enjoy retirement more than retirees without LTCI do.

Sudipto Banerjee, a researcher at the Employee Benefit Research Institute (EBRI), Washington, has reported evidence that may support that hypothesis in an analysis of data from the Consumption and Activities Mail Survey (CAMS), a supplement to the Health and Retirement Study (HRS) that is conducted by the Institute for Social Research at the University of Michigan.

The CAMS survey team has followed the same group of people for 8 years, and the database contains detailed expenditure data broken down into 32 categories. The database includes information about income, wealth and insurance product ownership as well as expenditure data.

Banerjee found that people with private LTCI tend to spend much more than people without LTCI.

In 2009, for example, median household spending was $47,392 for people with LTCI and $32,048 for people without LTCI.

People with LTCI spent more on LTCI and other types of insurance, but they also spent about 50% more on entertainment.

Banerjee used a statistical technique called regression analysis to try to separate the effects of owning LTCI from the effects of other factors that could influence spending.

Clearly, having higher income, greater wealth or more years of education correlate with increased spending, and poor health and older age correlate with reduced spending, Banerjee says in a discussion of the results of the regression analysis.

But “LTC insurance and private health insurance continue to be important determinants of spending even after controlling for income and other factors,” Banerjee says.

Simply having LTCI seems to correlate with spending about 8.3% more than otherwise comparable retirees, Banerjee says.

The effect of having LTCI on post-retirement spending is comparable to having more than 3 additional years of education and is about 3 times as strong as the effect of having private health insurance, Banerjee says.


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