Project Details
Projekt
Optimising Long-Term Care Benefits: Analysing the Marginal Value of Public Spending and the Impact of Cash vs. In-Kind Benefits
Subject Area
Economic Policy, Applied Economics
Term
since 2025
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 555333786
Our research project focuses on the critical role that public long-term care (LTC) benefits play in modern welfare states. These benefits, provided as cash or in-kind services, aim to help individuals in need of care maintain their quality of life. Given demographic ageing, it's increasingly important to manage the costs and ensure the efficient use of public funds in LTC. However, we still lack comprehensive assessments of the impact of LTC benefits on healthcare costs and care arrangements. Understanding these impacts is vital for public policy because LTC benefits create fiscal externalities that affect the marginal value of public LTC funds (MVPF), which measures the welfare delivered per dollar of government spending. Our project aims to examine the effects of marginal increases in LTC benefits on care arrangements, mortality, and healthcare costs, distinguishing between cash and in-kind benefits. We use advanced econometric tools and high-quality administrative data from Germany’s largest health and LTC insurance provider, from 2015 to the most recent data available, to estimate these effects and provide insights into the opportunity costs of informal care and other fiscal externalities. Our project is divided into two main papers. The first investigates how higher LTC benefits affect care arrangements, mortality, and healthcare costs, following the process from LTC assessment to utilisation. This includes examining local average treatment effects (LATEs), estimating dose-response functions for different benefit levels, and assessing labour market effects of informal caregiving. These insights enable us to calculate the MVPF for LTC benefits. The second paper uses causal mediation analysis to analyse the effects of higher LTC expenditures through in-kind benefits. This helps us understand how much of the total effects of higher LTC expenditures are due to in-kind benefits and their implications for balancing benefit schemes between cash and in-kind benefits. Our project integrates three strands of literature: public economics, applied econometrics, and health economics. First, we build on and contribute to public economics literature to understand the optimal benefit level after care dependency and apply the MVPF concept to LTC settings. Our research allows us to estimate MVPF components, including willingness to pay and the costs of both cash and in-kind transfers. Second, we use recent advances in applied econometrics to estimate the MVPF and uncover important non-linear effects masked by average estimates. Third, we connect to health economics literature on LTC, showing that LTC usage can be a substitute for hospital care usage. Overall, our research aims to thoroughly understand the marginal value of public LTC spending, considering unobserved heterogeneities. This will inform policymakers about the efficacy and optimal design of LTC benefits, contributing to the broader economics literature on benefit design in insurance markets.
DFG Programme
Research Grants
