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Aging and the Growth of Long-Term Care

  • Darius Lakdawalla
  • Tomas Philipson

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 U.S. market for long-term care and find substantial support for them, particularly the negative output effective 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 U.S. 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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Paper provided by Harris School of Public Policy Studies, University of Chicago in its series Working Papers with number 9909.

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Date of creation: Jun 1999
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Handle: RePEc:har:wpaper:9909
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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. Laurence J. Kotlikoff & John N. Morris, 1990. "Why Don't the Elderly Live with Their Children? A New Look," NBER Chapters, in: Issues in the Economics of Aging, pages 149-172 National Bureau of Economic Research, Inc.
  10. Gertler, Paul J., 1989. "Subsidies, quality, and the regulation of nursing homes," Journal of Public Economics, Elsevier, vol. 38(1), pages 33-52, February.
  11. 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.
  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. 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.
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