Formal and Informal Care: An Empirical Bayesian Analysis Using the Two-part Model

Area of Science:

• Health Economics
• Gerontology
• Medical Sociology

Background:

• Informal care by children is a potential substitute for costly institutional long-term care.
• Previous research often overlooks the endogeneity of informal care and complex health utilization data.

Purpose of the Study:

• To analyze how elderly medical care consumption is affected by changes in informal care from children.
• To address endogeneity and selection issues in health care utilization models.

Main Methods:

• Development of a two-part model with informal care as an endogenous regressor.
• Application of Bayesian Markov Chain Monte Carlo (MCMC) methods, including Gibbs sampling and the Metropolis-Hastings algorithm.
• Estimation of average treatment effects and their distributions via posterior simulation.

Main Results:

• Informal care substitutes for nursing home and hospital inpatient care.
• No significant average effect of informal care on paid home health care was found.
• Heterogeneous treatment effects were observed, with the most substantial substitution at the intensive margin for nursing home and hospital inpatient care.

Conclusions:

• Informal care significantly reduces the need for institutional care, offering potential cost savings.
• Targeted informal care policies could reduce government healthcare expenditure on programs like Medicaid and Medicare.
• Understanding the heterogeneous effects is crucial for effective policy design.