Working Paper（24-005E）Reforming the US Long-Term Care Insurance Market

One in three 50-year-old Americans will spend over 90 days in a nursing home, with roughly one in ten facing out-of-pocket expenses exceeding $200,000. Yet, only about 10 percent of individuals aged 65 or older possess private long-term care insurance (LTCI). While Medicaid provides benefits for those with minimal assets (about $2,000 or less) and low income, its stringent means-test and private market frictions result in many retirees paying for long-term care (LTC) expenses out-of-pocket. As the American population ages, policymakers anticipate a rise in state and federal Medicaid expenditures. This chapter examines reforms to both public and private LTCI provision using a structural model of the US LTCI market. Three policies are considered: universal public LTCI, no public LTCI coverage, and a policy that exempts asset holdings from the Medicaid asset test on a dollar-for- dollar basis with private LTCI coverage. We find that this third reform enhances social welfare and creates a vibrant private LTCI market while preserving the safety- net provided by Medicaid to low-income individuals.