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
• $500 in 3 states for full-time caregivers
• Deduct caregiving expenses
– National Family Caregiver Support
Program 2000
• Caregiver training and respite care
• Assistance navigating social services system
Current Research Gap
• In past work we found that IC reduces LTC
utilization among single elderly in the U.S.*
• Policy simulations
– We calculated cost savings to Medicare based on
the utilization results to evaluate whether tax credits
to caregivers would be cost-effective.
• But we do not know what really happens to
public LTC expenditures in the U.S.
* Van Houtven, C. H., E. C. Norton. 2004. “Informal Care and Health Care Use
of Older Adults.” Journal of Health Economics. 23 (6): 1159-1180
Research Questions
• Does informal care by adult children reduce
Medicare expenditures of the single elderly?
• What about among married parents?
• What about when a son is the primary
caregiver versus a daughter?
• What about when one considers other
sources of informal care?
Hypotheses
H1:
Informal care reduces Medicare LTC
expenditures of older adults by reducing
home health and skilled nursing home
expenditures
H2:
Informal care by children is endogenous to
Medicare expenditures of their parent
Hypotheses
H3:
The effect of child-provided informal care
on Medicare expenditures will be smaller
for married parents
H4:
The effect will not differ by whether or not
a son or a daughter is a primary caregiver
H5:
Informal care provided by others not as
effective
Two-part Expenditure Models
• E($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 nationallyrepresentative sample of communitydwelling 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
Formal care
Number
of Obs
Mean
Min
Max
Home Health Care
Any home health expenditures 3,942
Amount of HH expenditures
554
.14
$4,146
0
$43
1
$46,690
Skilled Nursing Facility (SNF)
Any SNF stays
Nights in SNF
3,942
170
.04
$7,701
0
$196
1
$52,274
Inpatient Care
Any inpatient hospital care
Nights in hospital
3,942
800
.20
$9,837
0
$290
1
$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)
– Pr(skilled nursing expenditures)
– E(skilled nursing expenditures| y>0)
– E(inpatient expenditures| y>0)
5%
5%
10%
5%
• IC increases
– Pr(inpatient expenditures)
10%
Main Results
H2: Endogeneity found in nearly all models
– Instruments pass all the tests
Main Results
Expenditure Marginal
Type
Effect
Home health
-238
Skilled nursing -4,844
Inpatient
-20
A 10 % increase
increase in IC 
$-24
$-484
$-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
(485+24+2>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 ???