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Indiana University Bloomington

BEPP

The Kelley Advantage

The department is home to the authors of Managerial Economics and Business Strategy and Games and Information: An Introduction to Game Theory, two of the nation’s leading textbooks in the field.

Research and Publications

Working Papers

The Interplay of Private Insurance Subsidy and Public Insurance Spending: Evidence from Long-Term Care Partnership Program

2010

Haizhen Lin, Robert Town

Abstract

This paper aims to explore the interplay of private insurance subsidy and public insurance spending. We accomplish this goal by studying the introduction of the partnership for long-term care insurance program (PLTC) to the private insurance market, in which public insurance is intensely involved. Under the PLTC program, the government subsidizes the purchase of private insurance by allowing the insured to keep extra assets (the amount of the individual's insurance coverage) in order to qualify for Medicaid coverage. We first model people's purchase decisions concerning private long-term care insurance under the traditional long-term insurance (LTC) and the PLTC programs. Our model allows for the possibility that people may value Medicaid-financed long-term care lower than privately financed care. The model has provided some important findings. First, we find evidence that Medicaid crowds out private insurance. Second, we find that the PLTC program expands the private insurance market by encouraging people whose income and assets fall in the middle of the spectrum to purchase private insurance. For those who do purchase private insurance and whose initial endowment exceeds a certain threshold, these individuals tend to purchase less comprehensive coverage under the PLTC, as compared to the amount of coverage they would purchase beneath the LTC program. Third, in terms of public spending, we find that the PLTC program will not lead to any savings in Medicaid spending, as compared to the traditional LTC program. To conclude the paper, we conduct an empirical test using a survey data of randomly selected purchasers and nonpurchasers of PLTC policies.

Citation

Lin, Haizhen. "The Interplay of Private Insurance Subsidy and Public Insurance Spending: Evidence from Long-Term Care Partnership Program", with Robert Town, Working Paper 2010.