Long-Term Care Insurance and the Family

Corina Mommaerts

Journal of Political Economy, 2025, vol. 133, issue 1, 1 - 52

Abstract: This paper examines whether informal care by family members influences the demand for long-term care insurance. Motivated by evidence that the availability of informal caregivers correlates with lower insurance demand and that informal care substitutes for formal care, I estimate a dynamic model of long-term care decisions between an elderly parent and her adult child. The availability of informal care lowers demand for insurance by 7 percentage points and suppresses Medicaid spending. A policy that provides equivalent cash benefits for informal care for such families can generate meaningful increases in insurance demand and family welfare and decreases in Medicaid spending.

Date: 2025
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