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Finally,
because such a large fraction of long- term care services are
now performed voluntarily by relatives, use of paid services
may increase significantly once third-party financing is available.
The principal effect of insurance or other such financing mechanisms
is to reduce the net cost of a service. People tend to buy more
of a service when it costs less out-of-pocket. In designing
and financing a long- term care program, both insurance companies
and the government must take such "moral hazard" into
account.
In this
study moral hazard is considered in two ways: first, as it affects
the estimated cost of both and public financing mechanisms and,
second, as it affects program design. Increases in service use,
and thus cost, can be limited by requiring beneficiary cost-sharing,
restricting eligibility to the severely disabled, requiring
preauthorization of services, and so on..
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