10 Forecasting Nursing Home Utilization of Elderly Americans

Nursing home care accounts for most expenditures for long-term care, yet little is known about the risk that the elderly face of having a prolonged nursing home stay. The issue is of growing and fundamental importance: the design of policies to insure against the expenditures associated with institutionalization depends on the distribution of nursing home utilization. It is not sufficient to know the expected value of nursing home utilization, because many insurance plans have a fixed ceiling on the nursing home benefit and their risk of paying the maximum benefit is the likelihood that an enrollee’s utilization will exceed the ceiling. Similarly, for public-private partnerships, in which private insurers might cover the first 12 or 24 months of nursing home care, while the federal government provides coverage above the private limit, the expenditures borne by insurers and by the federal government depend on the exact distribution of utilization. Insurers are not the only ones with an interest in nursing home utilization: before individuals can make an informed decision about purchas-ing long-term care insurance, saving to cover the costs of institutionalization