Medicaid and Long-Term Care: Do Eligibility Rules Impact Asset Holdings?
43 Pages Posted: 5 May 2018 Last revised: 15 Jun 2018
Date Written: June 6, 2018
Medicaid provides a critical source of insurance against the rising costs of long-term care, and individuals may strategically offload assets (typically to children) to meet the means-tested eligibility requirement. Yet, evidence on such behaviors is limited. In this paper, we quantify the extent of strategic transfers using variation in the penalty for improper transfers induced by the Deficit Reduction Act of 2005. We estimate difference-in-differences models based on the hypothesis that only individuals with high levels of self-reported nursing home risk (high risk) will alter transfers because of the Act. We find that over a two-year horizon, high risk individuals reduced transfers to children on the extensive margin by 10 percent and that the average total amount of transfers decreased by $1,700. We do not find any evidence that people adjusted real estate holdings in response to the DRA. We also conduct a triple-differences analysis to examine various forms of heterogeneity. We find that the reduction in transfers comes from high risk individuals who are less financially literate, suggesting that more financially sophisticated households either have other mechanisms to shield assets or are not sensitive to Medicaid eligibility.
Keywords: social insurance, Medicaid, long-term care, intergenerational transfers, financial literacy
JEL Classification: D14, J14, I1
Suggested Citation: Suggested Citation