Does Healthier Aging Alter Long-Term Care Insurance Demand? An Agent-Based Model of Coverage Timing and Rates

Year 2025, Volume: 8 Issue: 1, 37 - 60, 29.12.2025

Fatih Cemil Özbuğday

Abstract

This study develops and analyzes an agent-based model (ABM) of long-term care insurance (LTCI) demand, focusing on whether “healthy aging” (prolonged well-being and slower functional decline) diminishes overall LTCI coverage and delays insurance purchases. Compared to standard econometric methods, our ABM framework captures heterogeneous agent attributes and boundedly rational behaviors, which includes a calibrated myopia parameter that discounts future care risks. In simulated baseline and healthy-aging scenarios, we find that extended health spans do not significantly reduce final LTCI uptake rates; by the end of a 30-year horizon, coverage converges to roughly 25–26% in both models. Although healthier agents may defer purchasing slightly, this effect is marginal, which indicates that late-life risk perceptions ultimately override earlier confidence in health. Sensitivity analyses substantiate these core findings: premium adjustments induce substantial shifts in LTCI coverage, while variations in public and informal care substitution or myopia exert lesser impacts on final outcomes. Hence, premium affordability emerges as the principal lever for increasing LTCI adoption, whereas moderate modifications to healthy aging or behavioral assumptions do not substantially alter late-life coverage levels. Despite simplifying assumptions—such as exogenous informal care and a single LTCI product—the study underscores the power of ABMs to explore complex “what-if” scenarios and emergent market behaviors. Future extensions might incorporate dynamic insurer policies, more nuanced family interactions, and heterogeneous risk aversion to further enrich the understanding of LTCI uptake in aging societies.

Keywords

Long-Term Care Insurance , Agent-Based Modeling , Healthy Aging , Insurance Demand , Premium Affordability , Aging Policy

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