Home health care and the housing and living arrangements of the elderly

Home health care is long-term care, primarily skilled nursing, delivered in a home setting. Its provision may increase the likelihood that the elderly, the vast majority of which are homeowners, can live independently and maintain their desired residential status even if in relatively poor health. We provide empirical evidence on the extent to which home health care benefits affect the housing and living arrangements of the elderly by examining plausibly exogenous changes in the supply of long-term care insurance through the Medicare program that occurred in the late 1990s. Prior to 1997, Medicare reimbursed home health care agencies on a retrospective-cost basis. Then, starting in October, 1997, as a result of the Balanced Budget Act of 1997 (BBA97), Medicare switched to a system of prospective payments for home health care, which induced state-by-calendar-year variation in the supply of this type of insurance. We exploit this variation to econometrically identify the short-run impact on the housing and living arrangements of the elderly, using CPS data from 1995 to 2000 (before and after the law change). Our estimates indicate that living arrangements are quite responsive to home health care benefits for the widowed, but not for the married elderly. The estimated elasticity of shared living to benefits is −0.9 for the widowed. However, these benefits have little impact on homeownership, at least in the short run, which suggests that the moderately adverse health events toward which public home health care benefits are targeted are not those that drive housing mobility and tenure transitions at advanced ages.