This chapter summarizes recent theoretical and empirical economic research on long-term care. Long-term care differs from acute medical care in four fundamental ways. Long-term care is care for chronic illness, the nursing home industry is dominated by for-profit facilities sometimes facing excess demand, long-term care is often provided by unpaid caregivers, and little private long-term care insurance is purchased. This chapter starts with a taxonomy of long-term care, from expensive formal nursing home care to the vast provision of informal care provided in the home. The taxonomy is followed by a review of the supply of and demand for long-term care. Competition between predominantly for-profit nursing homes is an issue for industrial organization. Raising the public reimbursement rate to nursing homes paradoxically may actually lower quality. The supply of informal care, usually by daughters, is an issue for labor economics. Women who provide informal care may reduce their hours in the labor force. Private insurance for such large and uncertain health expenditures is an issue for risk and insurance. Few elderly purchase long-term care insurance, despite the high expenditure risk, for a variety of sound reasons. Savings behavior, whether for precautionary motives or bequests, is an issue for life-cycle behavior. A means-tested public insurance program combined with uncertainty about future expenditures may cause a separating equilibrium in which people either save for precautionary reasons or save nothing. Finally, a look to the future shows that demographic trends will greatly increase the number and percentage of elderly in industrialized nations. Future long-term care expenditures are not likely to be as burdensome as many fear. Although the majority of citations are from research in the United States, the issues presented here are usually pertinent to other industrialized nations.
