Effects of Strategic Behavior and Public Subsidies on Families' Savings and Long-Term Care Decisions

This study investigates the effects of Medicaid and strategic behavior on (1) the probability of entering a nursing home, (2) amounts of formal and informal care provided elderly persons in the community, and (3) asset accumulation. We find that Medicaid subsidies increase the probability of entry into the nursing home and use of formal care of elderly who remain in the community. However, Medicaid subsidies have not "crowded out" informal care provided by relatives and friends of the elderly. Nor has Medicaid reduced wealth accumulation by the elderly. Overall, we find little empirical support for the hypothesis that caregiving by children is motivated by the prospect of receiving bequests from their parents