WI20-01: Nursing Home Use Expectations & Wealth Accumulation Among the Elderly

Long-term care represents a substantial financial risk to the elderly in the U.S., yet few elderly individuals purchase private insurance for such care. Less wealthy households may qualify for Medicaid coverage but remaining households must pay for long-term care out of their pocket. Elderly persons therefore have an incentive to either accumulate substantial wealth to pay for long-term care or spend down their wealth to qualify for Medicaid coverage. These decisions depend crucially on individual expectations about future nursing home use. Therefore, it is important to understand what affects these expectations and how they influence wealth accumulation. The proposed study will use data from the Health and Retirement Study (HRS) to evaluate these effects. The HRS is a longitudinal survey of older Americans with detailed information on nursing home use expectations, actual use and wealth. Specifically, we will: 1) identify factors that are associated with expectations about future nursing home use and examine whether individuals update their nursing home use expectations in response to health shocks and other changing conditions, 2) examine whether expectations about nursing home use match actual nursing home use in the future, 3) evaluate whether nursing home use expectations influence wealth accumulation among the elderly, and 4) examine whether there is any heterogeneity by wealth, gender, race, cohort and other demographic and socioeconomic characteristics. This research is expected to advance our understanding of wealth inequality and the role of public programs or policies that impact the wealth of older Americans such as Social Security and Medicaid.