THE CAUSAL EFFECTS OF HOME CARE USE ON INSTITUTIONAL LONG-TERM CARE UTILIZATION AND EXPENDITURES

Limited evidence exists on whether expanding home care saves money overall or how much institutional long-term care can be reduced. This paper estimates the causal effect of Medicaid-financed home care services on the costs and utilization of institutional long-term care using Medicaid claims data. A unique instrumental variable was applied to address the potential bias caused by omitted variables or reverse effect of institutional care use. We find that the use of Medicaid-financed home care services significantly reduced but only partially offset utilization and Medicaid expenditures on nursing facility services. A $1000 increase in Medicaid home care expenditures avoided 2.75days in nursing facilities and reduced annual Medicaid nursing facility costs by $351 among people over age 65 when selection bias is addressed. Failure to address selection biases would misestimate the substitution and offset effects. Copyright (c) 2015 John Wiley & Sons, Ltd.