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Aging and the Growth of Long-Term Care

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  • Darius Lakdawalla
  • Tomas Philipson

Abstract

This paper analyzes how markets for old-age care respond to the aging of populations. We consider how the biological forces, which govern the stocks of frail and healthy persons in a population, interact with economic forces, which govern the demand for and supply of care. We argue that aging many times may lower the demand for market care by increasing the supply of family-provided care, which substitutes for market care. By providing healthy spouses, aging may increase the supply of family care-givers. Unexpectedly, this implies that relative growth in healthy elderly males may contract the long-term care market, while relative growth in healthy elderly females may expand that market. We examine these implications empirically using individual, county, and national-level evidence on the US market for long-term care and find substantial support for them, particularly the negative output effect of growth in elderly males. We then decompose the per capita growth in long-term care output over the last three decades into the component accounted for by improvements in health and that accounted for by relative growth among elderly males. The novel effects of unbalanced gender growth among the elderly appear important in explaining the net decline in US per-capita output over the last 30 years, a decline which seems remarkable given the simultaneous rise in demand subsidies for long-term care, declining fertility rates, rising female labor-force participation, and the deregulation of entry barriers to the nursing home industry.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6980.

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Date of creation: Feb 1999
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Publication status: published as Lakdawalla, Darius and Tomas Philipson. "The Rise in Old-Age Longevity and the Market for Long-Term Care" American Economic Review: Volume 92, Issue 1, March 2002
Handle: RePEc:nbr:nberwo:6980

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  1. Gertler, Paul J & Waldman, Donald M, 1992. "Quality-Adjusted Cost Functions and Policy Evaluation in the Nursing Home Industry," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1232-56, December.
  2. Hoerger, Thomas J & Picone, Gabriel A & Sloan, Frank A, 1996. "Public Subsidies, Private Provision of Care and Living Arrangements of the Elderly," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 428-40, August.
  3. Ettner, Susan L, 1994. "The Effect of the Medicaid Home Care Benefit on Long-Term Care Choices of the Elderly," Economic Inquiry, Western Economic Association International, vol. 32(1), pages 103-27, January.
  4. Norton, Edward C., 2000. "Long-term care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 17, pages 955-994 Elsevier.
  5. Laurence J. Kotlikoff & John Morris, 1988. "Why Don't the Elderly Live With Their Children? A New Look," NBER Working Papers 2734, National Bureau of Economic Research, Inc.
  6. Liliana E. Pezzin & Peter Kemper & James Reschovsky, 1996. "Does Publicly Provided Home Care Substitute for Family Care? Experimental Evidence with Endogenous Living Arrangements," Journal of Human Resources, University of Wisconsin Press, vol. 31(3), pages 650-676.
  7. Gertler, Paul J., 1989. "Subsidies, quality, and the regulation of nursing homes," Journal of Public Economics, Elsevier, vol. 38(1), pages 33-52, February.
  8. 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.
  9. Alvin E. Headen Jr., 1993. "Economic Disability and Health Determinants of the Hazard of Nursing Home Entry," Journal of Human Resources, University of Wisconsin Press, vol. 28(1), pages 80-110.
  10. David T. Ellwood & Thomas J. Kane, 1990. "The American Way of Aging: An Event History Analysis," NBER Chapters, in: Issues in the Economics of Aging, pages 121-148 National Bureau of Economic Research, Inc.
  11. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
  12. 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, vol. 15(3), pages 201-19, December.
  13. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
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Cited by:
  1. Ed Westerhout & Frank Pellikaan, 2005. "Can we afford to live longer in better health?," CPB Document 85, CPB Netherlands Bureau for Economic Policy Analysis.
  2. Darius Lakdawalla & Dana Goldman & Jay Bhattacharya, 2001. "Are the Young Becoming More Disabled?," NBER Working Papers 8247, National Bureau of Economic Research, Inc.
  3. Tabata, Ken, 2005. "Population aging, the costs of health care for the elderly and growth," Journal of Macroeconomics, Elsevier, vol. 27(3), pages 472-493, September.

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