Homeowner Behavior, Health Status, and Medicaid Payment Eligibility: Evidence from the Deficit Reduction Act of 2005

This paper analyzes the effect of a change in the status of housing equity as a protected asset for Medicaid long‐term care payment eligibility. A difference‐in‐difference‐in‐differences strategy is employed to estimate the effect of the policy on the housing equity holdings of potentially treated individuals. Using a panel of unmarried homeowners, the policy induced treated individuals who were likely to require long‐term care to hold less housing equity by values of $82,000 to $193,000 relative to control individuals. This equates to relative reductions of 12 to 29 percent for treated individuals after the policy change. Similar effects are not observed when considering health measures less predictive of long‐term care services and for a sample of married households who were unlikely affected by the policy. These estimates confirm the importance of the housing asset as a shelter for Medicaid eligibility.