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The Protective Effects of a Healthy Spouse: Medicare as the Family Member of Last Resort

Author

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  • Itzik Fadlon
  • Tal Gross
  • Alex Hoagland
  • Timothy Layton

Abstract

We study the value of informal care from a spouse and how access to such care shapes optimal insurance coverage for long-term care. Using Medicare claims and a novel spousal crosswalk, we examine how the sudden incapacitation of a spouse affects their partner's use of formal care. A spouse's health shock increases their partner's probability of a nursing-home stay by 30%. We document significant negative health effects for the partner, but provide evidence that their increase in nursing-home stays is largely driven by substitution from informal care to formal care. When their partners are incapacitated, Medicare recipients become less sensitive to the price of formal care, consistent with a higher valuation of that care and reduced moral hazard. We develop a framework to interpret these findings. The framework translates differences in the level and price elasticity of demand for formal care into a lower-bound estimate of the value of informal care provided by a spouse. It also suggests that optimal insurance for long-term care should be designed at the household level with more generous coverage for those who do not have access to informal care.

Suggested Citation

  • Itzik Fadlon & Tal Gross & Alex Hoagland & Timothy Layton, 2026. "The Protective Effects of a Healthy Spouse: Medicare as the Family Member of Last Resort," NBER Working Papers 35784, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:35784
    Note: AG EH PE
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    More about this item

    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure

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