Three Empirical Papers on Medicaid, Medicare, and Long-Term Care Insurance

This dissertation consists of three empirical essays investigating the relationship between the government provision of long-term care services through Medicaid and Medicare and the housing and portfolio decisions of the elderly. In the first essay, I exploit state-by-time variation in Medicaid's treatment of owner-occupied housing assets through the adoption of estate recovery programs to measure the impact of these law changes on elderly housing and asset decisions. In the second essay, I provide empirical evidence on the extent to which long-term care insurance affects the housing and living arrangements of the elderly by examining plausibly exogenous changes in the supply of long-term care insurance through the Medicare program that occurred in the late 1990's. In the third essay, I examine the relationship between the 1988 increases in the asset and income spousal protections and the wealth holdings of widows. The first essay examines the impact of state adoption of estate recovery programs on housing and asset decisions among the elderly. Adoption of estate recovery programs changed the owner-occupied housing safety net by making the house eligible for recovery by the government, which increased the implicit tax of holding owner-occupied housing. Using data from 1993-2004 in the Health and Retirement Study on elderly individuals, I find that state adoption of estate recovery programs makes the elderly decrease homeownership at death by 20 percentage points off a base homeownership rate of 60%, making them 33% less likely to own their homes at death and has a small impact on homeownership rates while the recipients are alive. Also, there is evidence that trusts are treated as a substitute to housing in order to preserve assets and carry out bequest motives at death. Adoption of these programs decreased the housing share of the elderly wealth portfolio. The second essay provides estimates on the extent to which the supply of long-term care insurance affects the housing and living arrangements of the elderly. My estimates indicate that living arrangements are quite responsive to home health care benefits. The estimated elasticity of shared living to benefits is -0.7 over all elderly and -1 for widowed elderly. However, these benefits have little impact on household headship among the elderly. This suggests that the bulk of the shared-living response occurred through co-residents living in elderly households. There is some weak evidence that increases in benefits raised elderly homeownership. The final essay estimates the impact of increases in the spousal impoverishment protections from the Medicare Catastrophic Coverage Act of 1988. I find that widows after 1988 held 29% more total wealth and 14% more financial wealth than those widowed before1988. I also find that widows after 1988 are more likely to own their homes and are less likely to live in a home owned by a relative compared to those widowed prior to the 1988 law change.

Insurance, Long Term Care

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