Informal Care and Medicare Expenditures Courtney Harold Van Houtven Edward C. Norton Funding: National Institute on Aging, NIH, R03 AG021485

Policy Climate Informal care of elderly by adult children –Is most common form of LTC –Preferred to formal care –Involves negative health effects on the caregiver –Reduces formal LTC

Policy Climate Obvious demographic changes mean –Demand for IC expected to increase –Supply of IC expected to decrease One might expect policies that encourage informal care

Policy Climate Unlike in Germany, very modest policies support caregivers in the U.S. –States tax credits for caregivers $500 in 3 states for full-time caregivers Deduct caregiving expenses –National Family Caregiver Support Program 2000 Caregiver training and respite care Assistance navigating social services system

Current Research Gap In past work we found that IC reduces LTC utilization among single elderly in the U.S.* Policy simulations –We calculated cost savings to Medicare based on the utilization results to evaluate whether tax credits to caregivers would be cost-effective. But we do not know what really happens to public LTC expenditures in the U.S. * Van Houtven, C. H., E. C. Norton “Informal Care and Health Care Use of Older Adults.” Journal of Health Economics. 23 (6):

Research Questions Does informal care by adult children reduce Medicare expenditures of the single elderly? What about among married parents? What about when a son is the primary caregiver versus a daughter? What about when one considers other sources of informal care?

Hypotheses H1:Informal care reduces Medicare LTC expenditures of older adults by reducing home health and skilled nursing home expenditures H2:Informal care by children is endogenous to Medicare expenditures of their parent

Hypotheses H3: The effect of child-provided informal care on Medicare expenditures will be smaller for married parents H4:The effect will not differ by whether or not a son or a daughter is a primary caregiver H5: Informal care provided by others not as effective

Two-part Expenditure Models E($FC)= Pr($FC>0)  E($FC | FC>0) 3 dependent variables –Home Health Expenditures –Nursing Home –Hospital (Part A) Key variable is endogenous IC

Instrumental Variables IV methods for endogeneity Instruments: –Number of siblings –Eldest child is a daughter (0,1) –Parent has a step child (0,1)

Methods Details Continuous models have ln(y) Retransformation uses smearing –Did not find evidence of heteroskedasticity so we use a single Duan smearing factor

Data Medicare claims data linked with1992/3 and 1994/5 Asset and Health Dynamics Among the Oldest Old (AHEAD) –Needed Medicare ID number to be included (~80% provided their number) AHEAD in 1992 was a nationally- representative sample of community- dwelling persons age 70 and above

Sample Single elderly Age 70 and above At least one living child 2,289 unique parents 3,942 observations (W1, W2) –For married analysis we have 8,182 observations

Dependent variables Defined as aggregated expenditures in the full year after the interview date (excluding quarter of the interview date) –Home Health Care –Skilled Nursing Facility Care –Inpatient Care

Table 1. Descriptive Statistics of Dependent Variables Number Formal care of ObsMeanMinMax Home Health Care Any home health expenditures 3, Amount of HH expenditures 554 $4,146 $43 $46,690 Skilled Nursing Facility (SNF) Any SNF stays3, Nights in SNF 170 $7,701 $196 $52,274 Inpatient Care Any inpatient hospital care 3, Nights in hospital 800 $9,837 $290 $159,857

Explanatory Variables Informal Care –24% received informal care –37 hours per month on average 80 years old 20% male 16% black, 7% Hispanic/Latino.88 ADLs (2.41 among those with any).68 IADLs (2 among those with any) 34% former smoker 74% have missing DxCG value

Main Results H1: IC reduces Sig.level –Pr(home health expenditures) 5% –Pr(skilled nursing expenditures) 5% –E(skilled nursing expenditures| y>0) 10% –E(inpatient expenditures| y>0) 5% IC increases –Pr(inpatient expenditures) 10%

Main Results H2: Endogeneity found in nearly all models –Instruments pass all the tests

Main Results ExpenditureMarginal A 10 % increase TypeEffectincrease in IC  Home health -238 $-24 Skilled nursing -4,844$-484 Inpatient -20$-2 Caution!!! These are not bootstrapped marginal effects

Main Results H3: IC for children of married parents –Has a lesser effect on expenditures in general as hypothesized –For level of skilled nursing care the magnitude is greater (also at 10% significance) H4: IC by sons versus daughters as primary caregivers –Discrete measure of “son is primary caregiver” nor “son* IC hours” is significant –There is not a gender-specific effect

Main Results H5: IC by Others –3SLS shows neither source of IC is significant. Additional instrument not valid (have a married child). –2SLS treating IC by children as exogenous and instrumenting IC from others shows that others do not reduce expenditures by as much as children. IC by others actually increases likelihood of HHA and SNF, and magnitude is large. Needs more work.

Policy Simulations Caution: Need to calculate bootstrapped marginal effects Examine a $500 tax credit for caregivers If tax credit induces a 10% increase in informal care for intensive caregivers then it may be cost-effective ( >500) Hand waving –Ignore intensive and extensive margins of IC –Ignore caregiver health expenditures due to caregiving –Ignore Medicaid, private expenditures –Ignore labor productivity losses for adult children who leave the labor force

Limitations Poor match between Medicare and AHEAD (70% matched) challenges generalizability Reliance on W1 of AHEAD means IC by infrequent caregivers likely missing Low number of skilled nursing users (170), begs the question: Is 10% significance the appropriate level for 2SLS model of SNF expenditures?

Conclusions IC saves Medicare money by reducing home health, skilled nursing, and inpatient care IC is endogenous IC has lesser effect for married parents IC’s effect no different by gender of primary caregiver IC provided by others ???