Evaluating Long-Term-Care Policy Options, Taking the Family Seriously* (original) (raw)

Abstract

We propose a dynamic non-cooperative framework for long-term-care (LTC) decisions of families and use it to evaluate LTC policy options for the US. We first document the importance of informal caregiving and economic determinants of care arrangements. We then build a heterogeneous-agents model with imperfectly-altruistic overlapping generations to account for the patterns we find. A key innovation is the availability of informal care, which is determined through intra-family bargaining. This opens up a new margin in response to policy and allows for informal insurance through home-production of care. Our calibrated model captures the observed care arrangements well. We study the implications of non-means-tested informal-care and formal-care subsidies as well as changes to means-tested Medicaid. We find that informal care responds strongly to these policies. An informal-care subsidy substantially reduces reliance on Medicaid, while the reduction of tax revenues due to lower labor supply by caregivers is modest. There are large welfare gains from a combination of informal-care and formal-care subsidies, even when combined with a reduction of the Medicaid program. Final version: November, 2016. Previous versions of this paper circulated under the titles "Macroeconomic Implications of Long-Term-Care Policies" and "Long-Term Care: Macroeconomic Implications and Policy". We thank Michèle Tertilt and three anonymous referees for very helpful comments and suggestions. We would also like to thank

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What is the impact of informal care on Medicaid expenses?add

The research indicates that implementing a non-means-tested informal-care subsidy can significantly reduce reliance on Medicaid, thereby decreasing government spending associated with long-term care.

How do family structures influence long-term care arrangements?add

The findings show that the presence of children substantially increases the likelihood of informal caregiving, while parental wealth also plays a critical role in determining care arrangements.

What are the economic effects of informal caregiving on labor supply?add

The model reveals that informal caregivers may experience reduced labor supply, though this effect is mostly concentrated among individuals with lower productivity, resulting in minor fiscal impacts.

How does the United States' long-term care system compare to Germany's?add

Compared to Germany, the U.S. relies more on Medicaid and private payers, with non-means-tested subsidies for informal caregiving shown to improve welfare without burdening government budgets significantly.

What unique factors contribute to intra-family decision-making in caregiving?add

The research identifies a blend of altruistic and strategic motives in intra-family bargaining, impacting the decision to provide informal care, with wealth and opportunity cost being pivotal factors.

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