New research concludes that while the existence of the Medicaid program is discouraging the purchase of long-term care insurance, tightening up current Medicaid rules will not significantly increase purchases of private insurance.
Currently, only about 10 percent of the elderly have private long-term care insurance. One reason for the low percentage, according to some, is the Medicaid "crowd out" effect – that is, the availability of Medicaid to cover long-term care costs is dampening interest in long-term care insurance. How much would a change in Medicaid rules reduce this crowd-out effect?
In "Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence From The Health And Retirement Survey" (National Bureau of Economic Research, Sept. 2006), three economists determine that a $10,000 decrease in the level of assets an individual can keep while qualifying for Medicaid would increase private long-term care insurance coverage by only 1.1 percentage points.
"These estimates imply," the researchers write, "that if every state in the country moved from their current Medicaid asset eligibility requirements to the most stringent Medicaid eligibility requirements allowed by federal law [in 2000] — a change that would decrease average household assets protected by Medicaid by about $25,000 — demand for private long-term care insurance would rise by 2.7 percentage points." They note that given such changes in Medicaid rules, the vast majority of households would still find it unattractive to purchase long-term care insurance.
"[E]ven large scale reductions in Medicaid asset protection are unlikely to stimulate private insurance coverage among most of the elderly population," the study’s authors conclude. They suggest that the Medicaid program would have to be redesigned to reduce the constraints it appears to place on private insurance demand.
For a copy of "Medicaid Crowd-Out of Private Long-Term Care Insurance Demand: Evidence From The Health And Retirement Survey" by Jeffrey R. Brown, Norma B. Coe, and Amy Finkelstein, click on the link above.