Long-term care provision for the elderly: market entry of nursing homes and the demand for home-care

Population ageing greatly increases the number of people needing long-term care (LTC). Policy changes are needed to supply and finance LTC. We address two important dimensions of supply. First, both for-profit and nonprofit firms are active in nursing home markets. Policy makers give nonprofit homes competitive advantages, e.g. tax advantages, but additional entry of for-profits is needed to meet increased demand. Also, nonprofit homes may differ in their competitive behavior. The number of competitors of each type per market is the result of their respective entry decisions, which depend on both observed and unobserved market characteristics. In this project we analyze entry and competition between nonprofit and for-profit homes theoretically and empirically.

While LTC insurance in many countries pays only for formal care, community-based care may be both preferred by the elderly and cheaper to provide. Germany has completely reformed its LTC market and introduced compulsory LTC insurance in 1994. Beneficiaries can opt to receive their insurance benefits in the form of a cash subsidy or receive a subsidy in form of in-kind care. We investigate consumer choice in this setting to learn the potential benefits of allowing choice between cash and in-kind provision. In particular we address two research questions: What is the optimal gap between the cash subsidy and in-kind home care? Does the existence of subsidies for home care help avoid institutionalization?