The impact of state tax subsidies for private long-term care insurance on coverage and Medicaid expenditures

"The NBER Bulletin on Aging and Health provides summaries of publications like this. You can sign up to receive the NBER Bulletin on Aging and Health by email. 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"--National Bureau of Economic Research web site.