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Behavioral Economics and LTC... How does it relate?


We all have unconscious and conscious biases that direct our decision-making, especially with financial decisions such as retirement and healthcare planning. You’ve probably heard about how the evolving field of behavioral finance is changing the way benefits are communicated. Behavioral finance is a relatively new field that combines behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.

As an example, for years 401(k) plans lacked participation that would have been expected with a benefit that often provided “free” money. The breakthrough in 401(k) participation came when more employers engaged in automatic enrollment for employees. Much of the thinking behind these “nudges” became the basis for the field of behavioral finance, led by research from economists like Richard Thaler, who won the Noble Prize in 2017. Although auto-enrollment for long-term care coverage would be ideal, not many employers would be willing to do this on a voluntary basis. However, there are several lessons that behavioral finance teaches us that can help increase participation in group LTC insurance plans. Here are some of the most powerful:

  • Keep choices as simple as possible. 
  • Use stories, not statistics. Statistics, 
  • Focus on the possible gain LTC will provide instead of the possible loss. 
  • Focus on “now” benefits, not the future. 
  • Forced choosing.


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