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Moral Hazard in Nursing Home Use

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  • David C. Grabowski
  • Jonathan Gruber

Abstract

Nursing home expenditures are a rapidly growing share of national health care spending with the government functioning as the dominant payer of services. Public insurance for nursing home care is tightly targeted on income and assets, which imposes a major tax on savings; moreover, low state reimbursement for Medicaid patients has been shown to lower treatment quality, and bed supply constraints may deny access to needy individuals. However, expanding eligibility, increasing Medicaid reimbursement, or allowing more nursing home bed slots has the potential to induce more nursing home use, increasing the social costs of long term care. A problem in evaluating this tradeoff is that we know remarkably little about the effects of government policy on nursing home utilization. We attempt to address this shortcoming using multiple waves of the National Long-Term Care Survey, matched to changing state Medicaid rules for nursing home care. We find consistent evidence of no effect of Medicaid policies on nursing home utilization, suggesting that demand for nursing home care is relatively inelastic. From a policy perspective, this finding indicates that changes in overall Medicaid generosity will not have large effects on utilization.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11723.

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Date of creation: Oct 2005
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Publication status: published as Gruber, Jonathan and David Grabowski. “Moral Hazard in Nursing Home Use.” Journal of Health Economics 26 (2007): 560-577. .
Handle: RePEc:nbr:nberwo:11723

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  1. Amy Finkelstein & Kathleen McGarry, 2003. "Private Information and its Effect on Market Equilibrium: New Evidence from Long-Term Care Insurance," NBER Working Papers 9957, National Bureau of Economic Research, Inc.
  2. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
  3. Norton, Edward C, 1995. "Elderly Assets, Medicaid Policy, and Spend-Down in Nursing Homes," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 41(3), pages 309-29, September.
  4. David C. Grabowski, 2004. "A Longitudinal Study of Medicaid Payment, Private-Pay Price and Nursing Home Quality," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 4(1), pages 5-26, 03.
  5. Jonathan Gruber & Aaron S. Yelowitz, 1998. "Public Health Insurance and Private Savings," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 42, Northwestern University/University of Chicago Joint Center for Poverty Research.
  6. David M. Cutler & Louise Sheiner, 1994. "Policy Options for Long-Term Care," NBER Chapters, in: Studies in the Economics of Aging, pages 395-442 National Bureau of Economic Research, Inc.
  7. Hoerger, Thomas J. & Picone, Gabriel & Sloan, Frank, 1995. "Public Subsidies, Private Provision of Care, and Living Arrangements of the Elderly," Working Papers, Duke University, Department of Economics 95-22, Duke University, Department of Economics.
  8. Grabowski, David C., 2001. "Medicaid reimbursement and the quality of nursing home care," Journal of Health Economics, Elsevier, Elsevier, vol. 20(4), pages 549-569, July.
  9. Powers, Elizabeth T., 1998. "Does means-testing welfare discourage saving? evidence from a change in AFDC policy in the United States," Journal of Public Economics, Elsevier, Elsevier, vol. 68(1), pages 33-53, April.
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Cited by:
  1. Liran Einav & Amy Finkelstein & Paul Schrimpf, 2007. "The Welfare Cost of Asymmetric Information: Evidence from the U.K. Annuity Market," NBER Working Papers 13228, National Bureau of Economic Research, Inc.
  2. R. Tamara Konetzka, 2006. "Changing Economic Incentives in Long-Term Care," Center for Policy Research Policy Briefs, Center for Policy Research, Maxwell School, Syracuse University 32, Center for Policy Research, Maxwell School, Syracuse University.
  3. Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, American Economic Association, vol. 96(4), pages 938-958, September.

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