Medicaid and Long-Term Care: The Effects of Penalizing Strategic Asset Transfers

51 Pages Posted: 5 May 2018 Last revised: 29 Oct 2019

See all articles by Junhao Liu

Junhao Liu

The University of Sydney - Discipline of Finance; University of Wisconsin - Madison - School of Business

Anita Mukherjee

University of Wisconsin - Madison - School of Business

Date Written: September 1, 2019

Abstract

Medicaid provides a critical source of insurance for long-term care, and individuals may strategically offload assets (typically to children) to meet the means-tested eligibility requirement. In this paper, we quantify the extent of such behavior using variation in the penalty for improper parent-to-child 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 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 11 percent and that the average total amount of transfers decreased by $4,860. The results hold only for coupled respondents. We also conduct a triple-differences analysis to examine heterogeneity with financial literacy and find that even those with a low level of financial literacy responded to the penalty.

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: The Effects of Penalizing Strategic Asset Transfers (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3165733 or http://dx.doi.org/10.2139/ssrn.3165733

Junhao Liu

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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

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

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