Job Market Paper
Medicaid aging waivers provide funding for in-home formal care to seniors. Their aim is to incentivize older adults who need long-term care to stay at home rather than move into a nursing facility. However, this policy may inadvertently shift care burdens onto informal caregivers, who would not otherwise be required to care for family members were they to enter nursing homes. In this paper, I test whether in-home formal care subsidized by Medicaid aging waivers is a substitute or complement for informal care provided by adult children to their parents. Using data on state-level Medicaid aging waiver expenditures from 1998 to 2014 linked with the restricted access Health and Retirement Study (HRS), I investigate whether program funding is associated with the probability that an HRS respondent provides informal care to her older parents. Changes to state-level policy funding produce a quasi-experiment, which allows me to use two-way fixed effects models to estimate a causal relationship between the program and informal caregiving. My findings reveal that a 10 percent increase in Medicaid aging waiver expenditures increases the overall likelihood that an adult child becomes an informal caregiver to her parents by 0.1 percentage points (0.3 percent). The overall estimate is composed of differential effects on different types of care. While policy expenditures are positively related to the likelihood of providing help with errands, they are negatively related to the likelihood of providing help with personal care (a more intensive form of caregiving). I also find that the Medicaid aging waiver funding is positively associated with the likelihood of being a nonintensive caregiver who spends fewer hours providing care, but unrelated to the likelihood of providing intensive care. Moreover, only female caregivers reduce caregiving for personal care. The results show that non-intensive informal care is a complement for in-home formal care, and provide the first empirical evidence on the effect of the Medicaid aging waivers on the composition of care received by older Americans.