Bye, Granny

Nursing homes and subsidies

During the next three decades, as the baby boomers move from middle to old age, the ranks of the elderly are expected to swell by 64 percent; the number of Americans 85 and over will nearly double. So the issue of government subsidies for nursing-home care will become increasingly important, just as the clout of benefit-hungry groups like the American Association of Retired Persons reaches an all-time high.

A recent working paper from the National Bureau of Economic Research injects a note of caution into this looming debate. Economists David Cutler of Harvard and Louise Sheiner of the Joint Committee on Taxation note that public subsidies for long-term care tend to reduce assistance from relatives and other private sources. "As the ease of acquiring Medicaid increases or Medicaid payments become more generous," they write, "fewer elderly receive substantial day-to-day help from their children."

Cutler and Sheiner analyze data from interviews conducted in 1982 and 1984 with a random sample of some 6,000 disabled elderly people, about 15 percent of whom spent time in a nursing home during the two-year period. Taking into account financial, demographic, and health information, they compare admissions in states with relatively generous Medicaid policies to admissions in states with lower subsidies and stricter standards. They find that looser rules and lower co-payments lead to greater use of nursing homes among people who may not need them.

"Estimates suggest that all of the elderly admitted to nursing homes when policies change formerly lived with their children or with others," Cutler and Sheiner write. "The view that the marginal nursing home admission is an elderly person living alone and without other means of support does not appear true in our data."