Demand for and access to institutional long-term care: the role of Medicaid in nursing home markets.

Economists long have speculated that Medicaid subsidies and related policies cause many nursing home markets to operate under conditions of permanent excess demand, resulting in access problems for Medicaid-eligible persons. If observations on nursing home use represent constrained supply instead of demand, estimation of unbiased demand parameters is difficult. In this paper, I estimate bivariate probits with partial observability on data from the National Long-Term Care Channeling Demonstration. The technique provides both unbiased demand parameters and direct tests of excess demand. The findings indicate that economic variables do not substantially affect decisions to seek nursing home care. Differential access to nursing home care by Medicaid eligibles and private payers provides empirical support for the excess demand hypothesis.