The Effect of Medicare Home Health Care Payment on Informal Care Use

Abstract

Background: Paid and informal home-based care constitute major components of the long-term care continuum for older adults with functional limitations. As financial pressures associated with providing publicly-funded home care to a growing population of older adults increase, potential long-term care policy options may involve reducing the availability of publicly-funded home care. However, the complicated relationship between paid home care and informal care makes it difficult to assess the overall impact of this type of policy.

Objectives: The objective of this paper is to assess the effect of a policy that reduced the availability of paid home care on the use of informal care, among older Americans with functional limitations. The specific policy was the implementation of an interim payment system for Medicare paid home care as part of the 1997 Balanced Budget Act. As a result of this payment system change, some states experienced greater reductions in the availability of publicly-funded home care in a way that is plausibly exogeneous.

Methodology: Reduced form two-part models of informal care hours are estimated to assess the impact of the Balanced Budget Act on the provision of informal care. Data come from the 1993, 1995, 1998, and 2000 HRS/AHEAD surveys.

Results: Results indicate that for the full population, individuals who lived in states with greater policy-induced reductions in paid home care did not experience any changes in informal care. However, among the subpopulation of individuals living below the federal poverty line, those who lived in states with greater policy-induced reductions in paid home care modestly increased their use of informal care.

Conclusions: This analysis illustrates that informal care substitutes for changes in paid home care, at least to some extent. Policies that reduce the availability of paid home care may increase the burden of informal caregivers. Furthermore, this burden may fall disproportionately on lower income populations. Policymakers should be cognizant of these consequences when considering different policy options related to the provision of long-term care to older adults.

Keywords: Long term care, home care, informal care