Home care reimbursement, long-term care utilization, and health outcomes

Using a substantial change in Medicare reimbursement policy to study the market for home health care, I find that the introduction of tightly binding average per-patient reimbursement caps led to a large drop in the provision of home care, particularly to the least healthy beneficiaries. This decline in home health utilization was not offset by increases in institutional long-term care or other medical care and there were no associated adverse health consequences. However, approximately one-quarter of the decline in Medicare spending was offset by increases in out-of-pocket expenditures for home health care, with the offset concentrated in higher income populations.