Economics Seminar - Medicaid's Long-Term Care Programs and the Macroeconomy

In the face of an ageing population, the demand for long-term care services is expected to increase in the United States for the next several decades. The Medicaid program is the largest payer of formal long-term care in the United States, and since 1999 there has been a growing effort at the federal level to increase coverage for formal care in the home by granting states more authority over their programs' eligibility rules. However, benefit expansions for the aged population have yet to be widely implemented as state-level policy makers cite concerns over the cost of the programs. In this paper, I calibrate an overlapping-generations model to the U.S. economy and quantify the fiscal and welfare implications of the eligibility rules that govern Medicaid's care programs. I find that the costs associated with expanding home care benefits are partially mitigated by individuals substituting out of institutional care. The substitution is most prevalent among elderly individuals with marginally higher incomes that gain access to Medicaid through a spend-down rule. Finally, expanding home care benefits to the aged population induces a heterogenous response regarding informal care provision that depends on household demographics.