Informal Care and Medicare Expenditures

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

2. 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

3. 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

4. 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

5. 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

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?

7. 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

8. 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

9. 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

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

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

12. 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

13. 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

14. 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

15. Table 1. Descriptive Statistics of Dependent Variables Number Formal care of Obs Mean Min Max Home Health Care Any home health expenditures 3,942 .14 0 1 Amount of HH expenditures 554 $4,146 $43 $46,690 Skilled Nursing Facility (SNF) Any SNF stays 3,942 .04 0 1 Nights in SNF 170 $7,701 $196 $52,274 Inpatient Care Any inpatient hospital care 3,942 .20 0 1 Nights in hospital 800 $9,837 $290 $159,857

16. 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

17. 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%

18. Main Results H2: Endogeneity found in nearly all models • Instruments pass all the tests

19. Main Results Expenditure Marginal A 10 % increase Type Effect increase in IC  Home health -238 $-24 Skilled nursing -4,844 $-484 Inpatient -20 $-2 • Caution!!! These are not bootstrapped marginal effects

20. 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

21. 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.

22. 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

23. 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?

24. 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 ???