Policy Options for Long-Term Care

This paper examines the effect of government nursing home policies on institutionalization rates and support for the elderly in the community. We combine data from the National Long Term Care Survey with information on state policies to estimate these effects. We examine two state policies for nursing home care: the ability of some high income elderly to receive Medicaid support, and the price differential between Medicaid and the private market. Both policies strongly affect aggregate nursing home utilization. as well as the composition of nursing home residents. In states with more liberal Medicaid rules. the high income elderly are more likely to use a nursing home. while in states with larger underpayments. the poor suffer reduced access. The marginal source of community care for the institutionalized elderly appears to be support from children or other helpers, rather than living alone. Almost all of the elderly in nursing homes would have lived with children or others had they been in the community. In addition, as the ease of acquiring Medicaid increases or Medicaid payments become more generous, fewer elderly receive substantial day-to-day help from their children.