Can Long-Term Care Insurance Partnership Programs Increase Coverage and Reduce Medicaid Costs?

Although long-term care is a substantial financial risk for retired households, only about 10 percent purchase insurance, with many of the remainder relying on Medicaid. Faced with rising Medicaid expenditures on long-term care, states have attempted to encourage the purchase of private long-term care insurance through partnership programs that exempt purchasers of qualifying policies from the Medicaid asset test. Using numerical optimization techniques, and assuming plausible preference parameters, we show that the programs will only increase insurance coverage among single males by 5 percent and single females by 4 percent. Most of the program benefits will go to those who would have purchased non-partnership long-term care insurance anyway. Thus, the cost of the subsidy will exceed the savings in Medicaid costs.