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Narrow framing: 5 things to know about an LTCI sales killer

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So, why the heck are people so much worse about insuring against long-term care (LTC) risk than against other types of risk?

See also: 5 reasons why consumers flunk LTC planning

The private long-term care insurance (LTCI) market is relatively new and has faced startup hiccups.

People hate to think about growing old, and, even now, there really aren’t all that many Americans in the “oldest old” category. The world is still getting ready to see what happens when a large number of Americans (and Europeans) turn 85.

The consumers who do think about LTC risk may assume that the best strategy is to depend on Medicaid to pay their bills, because they cannot afford private LTCI, do not trust private LTCI, or are unable to get through the private LTCI underwriting process.

But economists say another factor may be the way the human brain works.

See also: MIT economist studies real health care

Researchers are studying a number of learned habits and inborn traits that may affect how people analyze and respond to potential risk factors. One that’s getting attention is “narrow framing,” the tendency to make decisions about one small part of a complex matter in isolation, without considering the broader implications.

Researchers have found, for example, that workers who use narrow framing may put all of their retirement nest egg money in one type of investment. And, due to narrow framing, workers may take on more retirement portfolio risk when investment companies give them information about their returns less frequently. In other words: lousy information about returns may increase workers’ willingness to accept more investment risk.

See also: Report Analyzes Importance Of Investor Behavior

Daniel Gottlieb and Olivia Mitchell, researchers at the University of Pennsylvania business school, are studying how narrow framing shapes demand for private LTCI in the United States. The effects appear to be substantial, according to an early draft of their results published behind a paywall, on the National Bureau of Economic Research (NBER) website.

For a look at some of what Gottlieb and Mitchell are saying about the relationship between narrow framing and demand for LTCI, read on.


Narrow door frame

1. For narrow framers, “saving people’s lives” feels different from “letting people die,” even when, mathematically, the results are the same.

Gottlieb and Mitchell assumed when designing their study that “broad framers” want insurance policies that are actuarially fair, but that narrow framers want to make sure they get more in policy benefits than they pay in premiums.

To come up with data on what narrow framers think and do in the real world, they created a special module for the 2012 wave of the Health and Retirement Study (HRS) survey program. The HRS team polls 19,000 Americans ages 50 and older every other year for life.

The HRS team gave the Gottlieb-Mitchell framing module to about 1,6,00 of the people who took the HRS survey in 2012 and were living outside nursing homes.

The module includes two scenarios involving a disease outbreak. For each scenario, the survey participants could choose a safe response strategy, Program A, and a riskier strategy, Program B.

In the first scenario, Program A would save 300 people. Program B had a 50-50 chance of saving all 600 people, and a 50-50 chance of saving no one.

In the second scenario, Program A would let 300 people die. Program B had a 50-50 chance of letting all 600 people die, and a 50-50 chance of keeping anyone from dying.

The researchers assumed that broad framers would pick Program A in response to both scenarios, or that they would pick Program B in response to both scenarios.

The researchers assumed that narrow framers would choose the safe, “300 will be saved” in response to the first scenario, and the risky, “600 will die or none will die” option in response to the second scenario.

The researchers found that about 25 percent of all of the survey participants living outside nursing homes were narrow framers.

A sad man by a chart showing falling numbers

2. Narrow framing seems to slash the odds that a consumer will buy private LTCI.

Only about 8.7 percent of the narrow framers in the HRS sample had private LTCI, compared with 12.7 percent of the broad framers.

When the researchers tried to adjust for the effects of any other variables, including aversion to taking risks, they found that narrow framing appeared to reduce use of private LTCI by about 42 percent.

See also: EBRI: LTCI Boosts Overall Retiree Spending

 A face split into male and female pieces

3. Men are somewhat more likely to be narrow framers.

Gottlieb and Mitchell found that the tendency to be a narrow framer had little obvious connection with most other consumer characteristics measured by the HRS.

The only variable that had much of a correlation with a consumer’s framing approach was gender. Maleness increased the odds that a consumer would be a narrow framer by about 8 percent.

See also: 5 common client pitfalls in retirement planning

Big block with small blocks

4. Framing approach seems to have a much bigger effect on use of private LTCI than most other variables measured by the HRS.

In theory, people who know they are likely to need nursing home care should be the people most likely to use private LTCI. But the researchers say the effect of narrow framing seems to be much bigger than the effect of high LTC needs expectation levels.

See also: 5 ideas for selling long-term care insurance to Gen X


Fearful boy

5. All other factors being equal, strong fear of risk may reduce use of private LTCI.

Gottlieb and Mitchell found that risk-averse consumers like the idea of insurance protecting their ability to pay to maintain consumption levels, but that those consumers tend to view the possibility of not collecting benefits as a somewhat bigger risk.

See also: A Package Deal: Planning for Long-Term Care With Income Security