Financing Long-Term Care
Long-term care is the largest source of out-of-pocket expenditure risk for the elderly. While most episodes of long-term care last for one year or less, there is a long “right tail” to the distribution, with 12 percent of men and 22 percent of women having nursing home stays of more than 3 years (Brown and Finkelstein 2008). Furthermore, the cost of this care is likely to be substantial with nursing homes averaging over $75,000 per year. Yet in spite of the significant uncertainty regarding long-term care expenditures, only 10-12 percent of the elderly population is covered by private insurance and almost half of long-term expenditures are borne by Medicaid. As a result, strategies to finance Medicaid more efficiently or increase long-term care insurance coverage are important policy issues and are both addressed by the papers in this session. The first paper examines the costs and benefits of providing in-kind transfers as opposed to cash in Medicaid, which also has implications for how private insurance policies may be designed. The second and third paper looks at two important demand-side explanations for low rates of private insurance coverage, namely the availability of informal care from family members and perceived counterparty risk and distrust of insurers, and their role in explaining depressed demand for private long-term care insurance.