Long Term Care Risk for Couples and Singles

Elena Capatina, Gary Hansen and Minchung Hsu

No 32196, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper compares the impact of long term care (LTC) risk on single and married households and studies the roles played by informal care (IC), consumption sharing within households, and Medicaid in insuring this risk. We develop a life-cycle model where individuals face survival and health risk, including the possibility of becoming highly disabled and needing LTC. Households are heterogeneous in various important dimensions including education, productivity, and the age difference between spouses. Health evolves stochastically. Agents make consumption-savings decisions in a framework featuring an LTC state-dependent utility function. We find that household expenditures increase significantly when LTC becomes necessary, but married individuals are well insured against LTC risk due to IC. However, they still hold considerable assets due to the concern for the spouse who might become a widow/widower and can expect much higher LTC costs. IC significantly reduces precautionary savings for middle and high income groups, but interestingly, it encourages asset accumulation among low income groups because it reduces the probability of means-tested Medicaid LTC.

JEL-codes: D16 E21 H31 J14 (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-hea, nep-rmg and nep-upt
Note: EFG EH
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Related works:
Working Paper: Long Term Care Risk For Couples and Singles (2024)
Working Paper: Long Term Care Risk For Couples and Singles (2024)
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