Working Paper: NBER ID: w16406
Authors: Gopi Shah Goda
Abstract: In spite of the large expected costs of needing long-term care, only 10-12 percent of the elderly population has private insurance coverage. Medicaid, which provides means-tested public assistance and pays for almost half of long-term care costs, spends more than $100 billion annually on long-term care. In this paper, I exploit variation in the adoption and generosity of state tax subsidies for private long-term care insurance to determine whether tax subsidies increase private coverage and reduce Medicaid's costs for long-term care. The results indicate that the average tax subsidy raises coverage rates by 2.7 percentage points, or 28 percent. However, the response is concentrated among high income and asset-rich individuals, populations with low probabilities of relying on Medicaid. Simulations suggest each dollar of state tax expenditure produces approximately $0.84 in Medicaid savings, over half of which funnels to the federal government.
Keywords: longterm care insurance; tax subsidies; Medicaid expenditures; private insurance coverage
JEL Codes: G22; H31; H51; H71; H75; I11; I18; I38; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax subsidies (H20) | Medicaid expenditures (I18) |
| Probability of being covered by private longterm care insurance (G52) | Medicaid reliance (I18) |
| Tax subsidies (H20) | Private insurance coverage (G52) |
| Tax subsidies (H20) | Probability of being covered by private longterm care insurance (G52) |