Can the Government Incentivize the Purchase of Private Long-Term Care Insurance? Evidence from the Long-Term Care Partnership Program

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by Nadia Greenhalgh-Stanley, Kent State University

One important U.S. trend has been increased dependence on Medicaid to provide long-term care services for the elderly.  As a result, the government has attempted to develop laws that would incentivize the purchase of private long-term care insurance policies, which would shift some of the financial burden away from Medicaid.  In the Budget Deficit Reduction Act of 2005 (DRA05), Congress allowed states to adopt Long-Term Care Partnership programs, which incentivized the purchase of long-term care insurance by allowing individuals to shelter their assets from Medicaid should they ever need the program to provide long-term care services in addition to those provided by their long-term care insurance.  Prior to adoption of this law (except in four grandfathered-in states), individuals needing Medicaid after exhausting their private long-term care benefits would have to spend down their remaining assets to meet Medicaid spend-down laws.  After adoption of these programs, individuals were able to shelter their assets from Medicaid spend-down laws even if the program was required to provide long-term care services.  As a result, DRA05 set up incentives for elderly individuals to buy long-term care insurance policies.  This project will exploit the state-by-time variation in state adoption of these programs to determine whether long-term care partnership programs increased the number of policies purchased, as the government intended them to do.

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