Nursing home financing reform: how would it affect expenditures for nursing home care?

There are a number of proposals to expand substantially public financing of nursing home care. Included among the major elements of these proposals are front-end benefits limited to three or six months, back-end benefits with waiting periods of one or two years, and coverage of all nursing home days with or without substantial income-related cost sharing. Using data from the 1987 National Medical Expenditure Survey, this paper simulates the effect of these proposed changes in nursing home financing on public expenditures, Medicaid expenditures, and private expenditures (in total and by marital status and income group). The incentive for increased use of nursing home care also is examined. A short front-end benefit, the least expensive option in terms of public expenditures, increases public expenditures by $1 billion to $2 billion in 1987. Comprehensive coverage of all nursing home days increases public costs by $9 billion to $10 billion dollars, depending on the cost-sharing arrangement. There is wide variation in the range of plausible estimates because of uncertainty about the effect of increased public coverage of nursing home care on utilization.