Medicaid and Long-Term Care: Do Eligibility Rules Impact Asset Holdings?

43 Pages Posted: 5 May 2018 Last revised: 15 Jun 2018

See all articles by Junhao Liu

Junhao Liu

University of Wisconsin - Madison - School of Business

Anita Mukherjee

University of Wisconsin - Madison - School of Business

Date Written: June 6, 2018

Abstract

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

Liu, Junhao and Mukherjee, Anita, Medicaid and Long-Term Care: Do Eligibility Rules Impact Asset Holdings? (June 6, 2018). Available at SSRN: https://ssrn.com/abstract=3165733 or http://dx.doi.org/10.2139/ssrn.3165733

Junhao Liu

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

Anita Mukherjee (Contact Author)

University of Wisconsin - Madison - School of Business ( email )

975 University Avenue
Madison, WI 53706
United States

HOME PAGE: http://www.anitamukherjee.com

Register to save articles to
your library

Register

Paper statistics

Downloads
56
rank
360,624
Abstract Views
496
PlumX Metrics