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Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence from the Health and Retirement Survey

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  • Jeffrey R. Brown
  • Norma B. Coe
  • Amy Finkelstein

Abstract

This paper provides empirical evidence of Medicaid crowd out of demand for private long-term care insurance. Using data on the near- and young-elderly in the Health and Retirement Survey, our central estimate suggests that a $10,000 decrease in the level of assets an individual can keep while qualifying for Medicaid would increase private long-term care insurance coverage by 1.1 percentage points. These estimates imply that if every state in the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law – a change that would decrease average household assets protected by Medicaid by about $25,000 – demand for private long-term care insurance would rise by 2.7 percentage points. While this represents a 30 percent increase in insurance coverage relative to the baseline ownership rate of 9.1 percent, it also indicates that the vast majority of households would still find it unattractive to purchase private insurance. We discuss reasons why, even with extremely stringent eligibility requirements, Medicaid may still exert a large crowd-out effect on demand for private insurance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12536.

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Date of creation: Sep 2006
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Publication status: published as Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence from the Health and Retirement Survey , Jeffrey R. Brown, Norma B. Coe, Amy Finkelstein. in Tax Policy and the Economy, Volume 21 , Poterba. 2007
Handle: RePEc:nbr:nberwo:12536

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  1. Jonathan Gruber & Aaron Yelowitz, 1997. "Public Health Insurance and Private Savings," NBER Working Papers 6041, National Bureau of Economic Research, Inc.
  2. Jeffrey R. Brown & Amy Finkelstein, 2004. "Supply or Demand: Why is the Market for Long-Term Care Insurance So Small?," NBER Working Papers 10782, National Bureau of Economic Research, Inc.
  3. Amy Finkelstein & Kathleen McGarry & Amir Sufi, 2005. "Dynamic Inefficiencies in Insurance Markets: Evidence from Long-Term Care Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 224-228, May.
  4. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(2), pages 360-99, April.
  5. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 3(4), pages 370-79, October.
  6. Sloan, Frank A & Norton, Edward C, 1997. "Adverse Selection, Bequests, Crowding Out, and Private Demand for Insurance: Evidence from the Long-Term Care Insurance Market," Journal of Risk and Uncertainty, Springer, Springer, vol. 15(3), pages 201-19, December.
  7. Norton, Edward C., 2000. "Long-term care," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 17, pages 955-994 Elsevier.
  8. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, Econometric Society, vol. 57(4), pages 779-813, July.
  9. Jeffrey R. Brown & Amy Finkelstein, 2004. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," NBER Working Papers 10989, National Bureau of Economic Research, Inc.
  10. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(1), pages 153-68, February.
  11. Jeffrey R. Brown & Amy Finkelstein, 2007. "Why is the market for long-term care insurance so small?," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1967-1991 National Bureau of Economic Research, Inc.
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Cited by:
  1. Helmuth Cremer & Pierre Pestieau, 2009. "Securing Long-term Care in the EU: Some Key Issues," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 7(4), pages 8-11, 01.
  2. Krueger, Dirk & Perri, Fabrizio, 2010. "Public versus Private Risk Sharing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7625, C.E.P.R. Discussion Papers.
  3. PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The public economics of increasing longevity," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2012005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Gabriel, Stuart A. & Rosenthal, Stuart S., 2010. "Do the GSEs expand the supply of mortgage credit? New evidence of crowd out in the secondary mortgage market," Journal of Public Economics, Elsevier, Elsevier, vol. 94(11-12), pages 975-986, December.
  5. Gary V. Engelhardt & Nadia Greenhalgh-Stanley, 2008. "Public Long-Term Care Insurance and the Housing and Living Arrangements of the Elderly: Evidence from Medicare Home Health Benefits," Working Papers, Center for Retirement Research at Boston College wp2008-15, Center for Retirement Research, revised Dec 2008.
  6. Greenhalgh-Stanley, Nadia, 2012. "Medicaid and the housing and asset decisions of the elderly: Evidence from estate recovery programs," Journal of Urban Economics, Elsevier, vol. 72(2), pages 210-224.
  7. Mariacristina De Nardi & Eric French & John Bailey Jones, 2012. "Medicaid Insurance in Old Age," Working Papers, University of Michigan, Michigan Retirement Research Center wp278, University of Michigan, Michigan Retirement Research Center.
  8. Goda, Gopi Shah, 2011. "The impact of state tax subsidies for private long-term care insurance on coverage and Medicaid expenditures," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7), pages 744-757.
  9. Engelhardt, Gary V. & Greenhalgh-Stanley, Nadia, 2010. "Home health care and the housing and living arrangements of the elderly," Journal of Urban Economics, Elsevier, vol. 67(2), pages 226-238, March.
  10. Courtemanche, Charles & He, Daifeng, 2009. "Tax incentives and the decision to purchase long-term care insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 93(1-2), pages 296-310, February.
  11. Denis Kessler, 2010. "Confronting the Challenge of Long-term Care in Europe," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 8(2), pages 18-23, 07.
  12. Jeffrey Brown & Amy Finkelstein, 2011. "Insuring Long Term Care In the US," NBER Working Papers 17451, National Bureau of Economic Research, Inc.
  13. Lin, Haizhen & Prince, Jeffrey, 2013. "The impact of the partnership long-term care insurance program on private coverage," Journal of Health Economics, Elsevier, Elsevier, vol. 32(6), pages 1205-1213.

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