When the Affordable Has No Value, and the Valuable is Unaffordable: The U.S. Market for Long-Term Care Insurance and the Role of Medicaid

Abstract

The crowding-out by Medicaid has been identified as a possible reason for the low demand for private long-term care insurance. I extend the previous analysis to the case in which budget constraints inhibit access to care. This changes the nature, scope, and welfare implications of crowding-out. It suggests a large value of Medicaid that a private insurance market is unable to offer due to a dilemma prevalent in - but not exclusive to - the market for long-term care insurance: a dilemma between access and affordability. Several empirical patterns can be explained by considering the implications of limited affordability.

Keywords: Aging, Insurance, Long term Care, Medicaid

JEL Classification: G22; I11; I38