Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence from the Health and Retirement Survey

38 Pages Posted: 25 Sep 2006 Last revised: 3 Sep 2010

See all articles by Jeffrey R. Brown

Jeffrey R. Brown

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); University of Illinois College of Law; University of Illinois at Urbana-Champaign - Institute of Government and Public Affairs (IGPA); University of Illinois at Urbana-Champaign - Department of Economics

Norma Coe

University of Pennsylvania - Perelman School of Medicine

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 2006

Abstract

This paper provides empirical evidence of Medicaid crowd out of demand for private long-term care insurance. Using data on the near- and young-elderly in the Health and Retirement Survey, our central estimate suggests that a $10,000 decrease in the level of assets an individual can keep while qualifying for Medicaid would increase private long-term care insurance coverage by 1.1 percentage points. These estimates imply that if every state in the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law â€" a change that would decrease average household assets protected by Medicaid by about $25,000 â€" demand for private long-term care insurance would rise by 2.7 percentage points. While this represents a 30 percent increase in insurance coverage relative to the baseline ownership rate of 9.1 percent, it also indicates that the vast majority of households would still find it unattractive to purchase private insurance. We discuss reasons why, even with extremely stringent eligibility requirements, Medicaid may still exert a large crowd-out effect on demand for private insurance.

Suggested Citation

Brown, Jeffrey R. and Coe, Norma and Finkelstein, Amy, Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence from the Health and Retirement Survey (September 2006). NBER Working Paper No. w12536. Available at SSRN: https://ssrn.com/abstract=931378

Jeffrey R. Brown (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

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Norma Coe

University of Pennsylvania - Perelman School of Medicine ( email )

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Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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