Medicaid Crowd-Out of Long-Term Care Insurance with Endogenous Medicaid Enrollment

I examine the impact of policies lowering long-term care insurance (LTCI) premiums and Medicaid availability on the LTCI demand of unmarried elderly women living in four states--California, Florida, Texas, and Michigan--by developing and estimating a stochastic dynamic model of decisions on LTCI purchase, Medicaid enrollment, nursing home use, and asset holdings. The model parameters are estimated using the Health and Retirement Study from 1998 to 2004 by simulated maximum likelihood estimation. Counterfactual policy experiments based on the estimated parameters show that both price elasticity and Medicaid crowd-out of LTCI demand are small for the population studied.