Increased Longevity Retires Traditional
Nursing Homes
Tomas Philipson and Darius Lakdawalla

 

Aging reduces the demand for market-based long-term care by increasing the supply of its primary substitute, family-provided home care. In their Harris School working paper, Aging and the Growth of Long-Term Care, University of Chicago researcher Tomas Philipson and colleague Darius Lakdawalla find that increased longevity has resulted in more Americans being able to care for themselves and their spouses at home. This has subsequently reduced the need for long-term health care facilities and services, such as nursing homes and assisted living communities.

Many analysts predict significant growth in the long-term care industry to meet the demands of an aging population; however, Philipson and Lakdawalla found that per capita demand for market-based long-term care has declined over the past 30 years despite favorable economic circumstances, such as increased public financing of long-term care and increased female labor force participation. They conclude that improved health and longevity, marriage patterns, and changes in the ratio of elderly men to women outweigh the economic drivers and contribute to an overall decline in market-based care. The findings presented in this study have distinct policy implications for public expenditures in long-term care via Medicaid subsidizations as well as the examination of long-term care facilities and their serviced population.

Findings

Changes in healthy versus frail status, the ratio of males to females, and marriage patterns that have accompanied improved longevity among the elderly have precluded growth in the long-term care market that parallels elderly population growth. First, the combination of elderly population growth and health status of the elderly population can stimulate or dampen demand for market-based care. If the elderly population lives longer and is more disabled, demand for nursing home care will expectedly increase. By contrast, a healthier, less disabled elderly population will demand less nursing home care. In 1981, the incidence of disability among the population over age 75 was 32%. In 1991, this rate fell to 28%. There were approximately 13.5 million people over 75 in 1991. This improvement in health resulted in half a million fewer elderly disabled people that represent a significant share of the nursing home population.

Second, single frail women are disproportionate users of nursing home care, and improved female health leads to an increase in the number of healthy widows who will eventually enter frailty and will be likely to require long-term care outside the home. Further, analysis of spousal care reveals that the growth of healthy elderly men contracts the long-term care market, while growth in healthy elderly women expands the market. This pattern is closely related to the fact that, on average, women live longer and pair with older men; they are thus available and relatively healthy to care for husbands when they become disabled. However, they have no one to care for them when they enter frailty, so they must turn to the market. Philipson and Lakdawalla found that a 1 percent increase in the population of elderly men reduces long-term care output by 1.3 percent. A 1 percent increase in the population of elderly women raises long-term care output by 1.2 percent. A general population increase of 1 percent raises output by about .9 percent.

Third, toward the late '80s, elderly male populations began to grow faster than female. The increased availability of healthy elderly men decreases the likelihood and expands the timeframe within which women will become widowed and then frail. If population trends continue and men become healthier and live longer, there will be fewer healthy widows, and thus fewer healthy women entering frailty without a healthy spouse to provide care in the home. Marriage, then, is a source of healthy caregivers in the home for both men and women, which decreases demand for nursing homes and assisted living communities.

Table 5: Decomposition of Growth in Long-Term Care Demand
	Over 65		Over 75		Over 85
	1971-1981	1981-1991	1971-1981	1981-1991	1971-1981	1981-1991
Population Effect	24.32%	21.74%	27.12%	30.13%	45.73%	34.41%
Gender Effect	8.23%	1.79%	9.23%	0.33%	4.90%	-2.63%
Health Effect	5.71%	-12.16%	0.00%	-18.92%	0.00%	-10.05%
Residual Effect	-2.76%	-0.67%	-0.85%	-0.84%	-15.13%	-11.03%
Total Growth	35.50%	10.69%	35.50%	10.69%	35.50%	10.69%

Philipson and Lakdawalla found that the effects of marriage are stronger when the cost to family members of providing home care falls, as might occur when subsidies to market-based home care rise (which is often a complement to family-provided care) or when Social Security benefits become more generous. Further, spouses care for frail elderly regardless of whether or not children are present to assist in care giving. The strong effects of marriage in providing home-based care persist except in cases in which mental disability is very severe.

Methodology

Lakdawalla and Philipson consider the relation between aging and market outputs in the U.S. between 1989-1994, using aggregate data from HCIA's Guide to the Nursing Home Industry as well as electronically published supplements to that guide for the state level. The HCIA data set contains population breakdowns by gender and age for every state. Researchers constructed statistics for male and female populations for three age groups: over 65, over 75 and over 85. HCIA also gathers data from state governments on the total beds available statewide in the nursing home industry. They used these figures, multiplied by 365, to calculate bed-days available yearly in each state.

Researchers supplement this with an analysis of aging and long-term care within all U.S. counties, using data from the Bureau of Health Professions Area Resource File (1940-1995 edition). Researchers took county level data on the long-term care output and demographic characteristics of each county. The file contains county level data on the number of long-term care facilities, the total number of beds in all such facilities and the total number of residents in each facility.

Researchers define long-term care as the care of an individual with a chronic condition. If one partner falls into frailty before the other, researchers assume that the healthy partner cares for the frail one at home. If both partners become frail, researchers assume that the both require market based long-term care. Finally, all healthy widows are matched to healthy widowers until the supply of healthy widowers runs out, assuming that the number of healthy widows always exceeds that of healthy widowers.

Background

Since 1960 the share of the U.S. population above 65 years of age has grown substantially, from about 9 percent to 14 percent. In most developed countries, the share of public spending on the elderly has increased in line with the growth in the older populations. Philipson and Lakdawalla found that growth in bed-days has rapidly decelerated since 1970, despite a relatively stable growth rate for elderly populations. In the mid '70s, for example, bed-days increased at a rate of 4.6 percent annually; in the mid '80s this growth rate plummeted by more than half to 2.2 percent. Finally, in the late '80s and early '90s growth dropped again to 1.4 percent.

Relatively little analytic attention has been paid by economists to the macroeconomic aspects of the market for long-term care and to the impact of aging on this market. Specifically, understanding the macro-level interactions between biological and economic forces in this market seems important for understanding the movement of output over time.

 

Research Summaries are designed to help broaden the dissemination of current policy-relevant research. These Summaries are funded by the Irving B. Harris Graduate School of Public Policy Studies at the University of Chicago.

For more information, contact Jamie Rosman at HarrisSchool@uchicago.edu or (773) 702.2287.

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