At $135 billion annually, long-term care expenditures represent over 8.5 percent of total health expenditures for all ages, or roughly 1.2 percent of GDP... Private insurance reimburses only 4 percent of long-term care expenditures, while about one-third of expenditures are paid for out-of-pocket.
...Medicaid is quantitatively important in explaining the absence of private insurance. Indeed, we find that even if we “fix” whatever supply side problems may exist – and therefore offer comprehensive private policies at actuarially fair prices – at least two-thirds, and as much as 90 percent, of the wealth distribution still does not want to buy comprehensive insurance. This finding points to the important role played by Medicaid in fundamentally constraining demand for private long-term care insurance, even in the absence of any private market problems...changes to the Medicaid system are necessary, although not necessarily sufficient, to substantially increase demand for private long-term care insurance.
The problem is that the way that the Medicaid rules are written, a huge portion of private long-term insurance is effectively taxed away. For many people, to buy long-term care insurance is to protect the government, not yourself.
For Discussion. One commmenter on a previous post argued that Medicaid ought to be scrapped, with a negative income tax used instead to reach the indigent. How does the paper mentioned here reinforce that idea?