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Population aging is a major global issue faced by almost all countries in the world. By 2013, 11.7 percent of people worldwide are aged 60 years or over, this number is expected to be 21.1 percent by 2050 (United Nations, 2013). As a result, the old-age support ratios in both developed and developing countries are expected to continue to fall in the next few decades, placing heavy burden on their long-term care (LTC) systems. In response to this challenge, countries have taken different approaches to strengthen their LTC systems. In this dissertation, we discuss the characteristics and problems of the LTC systems in the United States and China, the largest developed country and the largest developing country in the world, and then study the approaches they have taken to cope these problems. Chapter 2 presents findings of a study evaluating the financial protection effects of private long-term care insurance (LTCI) in the United States. Although private LTCI is often discussed as a potential solution to the need for LTC financing, there exists remarkably little empirical evidence on the economic consequences of being insured. We use U.S. Health and Retirement Study data to examine how LTCI affects key financial outcomes of insured individuals, including asset accumulation. Using an instrumental variable (IV) approach to account for the endogeneity of LTCI purchase, we find that LTCI leads to consistently positive effects on assets, consistently negative effects on Medicaid and Food Stamps enrollment and parent-child financial transfers, and ambiguous effects on out-of-pocket (OOP) medical payments. These results suggest that although private LTCI is ineffective at protecting insured individuals against large medical expenditures, it improves the general financial well-being of insured individuals potentially by reducing Medicaid-related disincentives to asset accumulation, motivating them to save more and reduce asset transfers. Chapter 3 examines the impact of formal home care use on key physical and mental health outcomes for spouses of care recipients in the United States. Over the past three decades, there has been a large expansion in noninstitutional LTC, and public financing of long-term care services has been shifting away from nursing home toward home and community-based services (HCBS). However, given that spouses of care recipients play an important role in making LTC decisions, there exists remarkably little empirical evidence on the effects of different LTC settings on spousal health outcomes. We use U.S. Health and Retirement Study data to examine how home health use affects key physical and mental health for spouses of care recipients. Using an IV approach to account for the endogeneity of home health use, we find that home health use leads to mostly insignificant, yet consistently negative effects on spousal physical health, which may be caused by increased informal care responsibilities. We also find improved spousal mental health outcomes, especially in depression symptoms, which may be caused by increased satisfaction derived from providing more intensive informal care, from enabling care recipients to stay in their preferred LTC setting, or from living together with their partners. Our results are important in estimating the potential cost and effectiveness of HCBS expansion. Chapter 4 examines the impact of family size on informal care supply in China, as China recently abolished the one-child policy (OCP) and allowed all couples to have two children partly in response to its growing aging population and increasing demand for informal caregivers. Because only recently has the aging of parents subject to the OCP created significant need for long-term care among this generation, evidence on whether having more children increases the probability of receiving LTC among the elderly in modern China remains limited. We use data from the China Health and Retirement Longitudinal Study (CHARLS) to examine how family size affects LTC support for elderly parents. Using an IV approach to account for the potential endogeneity of fertility choice, we find that compared to parents with only one child, parents with two or more children are 17 percentage points more likely to receive care from their adult children. This effect is larger among rural residents but insignificant among urban residents. However, having more children does not increase the parents’ overall probability of getting care— care from spouses largely compensates/substitutes for care from adult children. Our results suggest that the new two-child policy (TCP) may not necessarily lead to an increase in total informal care supply, but may instead transfer the caregiving burden from spouses to adult children. The end of the OCP will likely not reduce the need for further investment in developing the formal LTC system in China.


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