A Dynamic Analysis of Long-Term Care Insurance Decisions (Job Market Paper) 
The cost of nursing home care represents a substantial financial risk for older households. Yet, only 10 percent purchase long-term care insurance (LTCI), with many relying on Medicaid. Using Health and Retirement Study data, I estimate a structural model of the LTCI purchase decision. I conclude that this population has a modest preference for higher quality care and that Medicaid crowds out LTCI. Housing wealth provides self-insurance against the cost of nursing home care, so that individuals who are “house-rich cash-poor” are less likely to purchase LTCI. I also evaluate public policies designed to stimulate the take-up of LTCI. I find that a comprehensive 20 percent subsidy would increase take-up by 160 percent, but the resulting Medicaid savings would amount to only 22 percent of the subsidy cost. A targeted subsidy would be more likely to break even, but would have only a small effect on coverage. Full enforcement of Medicaid estate recovery programs would reduce Medicaid expenditure by 31 percent, but would have insignificant effect on LTCI coverage.
The Impact of House Price Movements on the Wealth Accumulation of Older Households
House prices in the United States fluctuate over time with significant regional variation. Thus, understanding how these price movements affect households’ consumption has important policy implications. Existing studies focus mostly on the working population, leaving the effect of older households, who could be either the largest beneficiaries or victims of house price fluctuations, unexamined. Using Health and Retirement Study data, this paper shows that house price fluctuations significantly affect non-durable goods consumption of older households. Estimations indicate that both the wealth effect and a relaxed borrowing constraint increase consumption when house prices appreciate. In addition, this paper finds that only unexpected changes in house prices lead to changes in consumption of non-credit constrained households, which is consistent with economic theory predictions. Finally, this paper provides evidence that older households usually fund additional consumption by increasing mortgage debt, rather than by drawing down financial assets.
How Much Do Households Really Lose by Claiming Social Security at Age 62?
Individuals can claim Social Security at any age from 62 to 70, although most claim at 62 or soon thereafter. Those who delay claiming receive increases that are approximately actuarially fair. We show that expected present value calculations substantially understate both the optimal claim age and the losses resulting from early claiming because they ignore the value of the additional longevity insurance acquired as a result of delay. Using numerical optimization techniques, we illustrate that for plausible preference parameters, the optimal age for non-liquidity constrained single individuals and married men to claim benefit is between 67 and 70. We calculate that Social Security Equivalent Income, the amount by which benefits payable at suboptimal ages must be increased so that a household is indifferent between claiming at those ages and the optimal combination of ages, can be as high as 19 percent.
Other Research Papers
Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth
What Effect Do Time Constraints Have on the Age of Retirement?
Why Do Married Men Claim Social Security Benefit So Early? Ignorance, Caddishness or Something Else
How Much Do Older Workers Value Employee Health Insurance?
When Should Married Men Claim Social Security Benefits?
An Annuity People Might Actually Buy
Will Reverse Mortgages Rescue the Baby Boomers?
