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The impact of state tax subsidies for private long-term care insurance on coverage and Medicaid expenditures

  • Goda, Gopi Shah

In spite of the large expected costs of needing long-term care, only 10–12% of the elderly population has private insurance coverage. Medicaid, which provides means-tested public assistance and pays for almost half of long-term care costs, spends more than $100billion annually on long-term care. In this paper, I exploit variation in the adoption and generosity of state tax subsidies for private long-term care insurance to determine whether tax subsidies increase private coverage and reduce Medicaid's costs for long-term care. The results indicate that the average tax subsidy raises coverage rates by 2.7 percentage points, or 28%. However, the response is concentrated among high income and asset-rich individuals, populations with low probabilities of relying on Medicaid. Simulations suggest each dollar of state tax expenditure produces approximately $0.84 in Medicaid savings, over half of which funnels to the federal government.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7 ()
Pages: 744-757

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:744-757
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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