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

While the private long-term care insurance market has remained small, an important trend in the United States has been the 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, in order to at least initially shift some of the financial burden away from Medicaid. The Deficit Reduction Act of 2005 (DRA05) allowed states to adopt Long-Term Care Partnership (LTCP) programs, which provided incentives for individuals to purchase private long-term care insurance policies by decreasing the implicit tax the elderly face for holding financial and non-housing assets. However, the literature to date has little empirical evidence on whether the government has been successful in expanding the private long-term care insurance market. Using the Health and Retirement Study (HRS) and state-by-time variation in adoption of LTCPs, I find that state adoption of these programs increased the incidence of having long-term care insurance by 3 percent and decreased Medicaid use among respondents by 18 percent. Additionally, I find an increase in private long-term care insurance policies that provide nursing home care and a decrease in plans that provide in-home care. These results are especially important with the recent OAA and CLASS legislation.