Do seniors understand their risk of moving to a nursing home?

Health Services Research, June, 2005 by Donald H. Taylor, Jr., Jan Osterman, S. Will Acuff, Truls Ostbye

How to best provide long-term care services for the aging U.S. population is one of the most difficult public policy challenges of the twenty-first century (Feder, Komisar, and Niefeld 2000). Nursing home care is a subset of long-term care, (1) but one that receives a great deal of policy attention because of the public expenditure of funds via Medicaid after "spend-down" (Taylor, Sloan, and Norton 1999). Individuals are responsible for financing nursing home care until virtually all financial assets have been exhausted through spend down. The likelihood of spending some time in a nursing home is relatively high (around 40 percent of 65 year olds spend some time in a nursing home prior to death) (Liu 1994; Murtaugh et al. 1997), so elderly individuals and their families face potentially catastrophic financial outlays given that annual nursing home costs range from $40,000-$100,000 per year (Moody 2002). Nursing home expenditures are projected to be $180 billion in 2005 (Burner and Waldo 1995) with out-of-pocket payments and Medicaid expected to remain the most important sources of funding. Private long-term care insurance is available, but less than 5 percent of seniors nationally have such insurance (Cohen 2003), and it covers a relatively small proportion of the total national nursing home bill.

A number of studies have identified important predictors of seniors moving to nursing homes (Cohen, Tell, and Wallack 1988; Murtaugh, Kemper, and Spillman 1990; Kemper and Murtaugh 1991; Murtaugh, Kemper, and Spillman 1995; Murtaugh et al. 1997; Cagney and Agree 1999). Moving to a nursing home has consistently been found to be more likely among persons who are older and those who have serious disabilities (e.g., larger number of limitations in Basic and Instrumental Activities of Daily Living [BADL and IADL]). African Americans, married persons, and men are less likely to be institutionalized than are whites, single persons, and women (Coughlin, McBride, and Liu 1990; Wolinsky et al. 1992; Murtaugh et al. 1997).

Given the substantial risk of needing such expensive care, it may appear surprising that private long-term care insurance is not more commonly purchased (Feder, Komisar, and Niefeld 2000). (2) Do elderly persons not correctly assess their personal risk of moving to a nursing home ? Providing an empirical answer to this question is the motivation of this paper. If seniors systematically underestimate their personal risk of moving to a nursing home, then this could at least partially explain low rates of private long-term care insurance and imply that information campaigns designed to increase awareness of the risk of such care could increase the purchase of long-term care insurance. If they do understand their personal risks, then low rates of private long-term care insurance exist in spite of their understanding, and information campaigns designed to improve awareness of risk are not likely to be fruitful.

Subjective and Objective Probability of Moving to a Nursing Home

An individual's belief about their likelihood of moving to a nursing home is plausibly related to their actual move to a nursing home since such a belief likely contains information about a respondent's need, preferences, and intentions. The key test for whether such a belief is an important predictor of moving to a nursing home is whether it remains a predictor after controlling for other factors known to be linked to nursing home admission. Such beliefs and expectations are generally not measured, but are measured in the database used in this study allowing for such a test. Individuals' beliefs about their own longevity have been found to remain a significant predictor of their actual mortality after controlling for other factors known to influence mortality (Smith, Taylor, and Sloan 2001). We term individual's beliefs regarding their likelihood of moving to a nursing home within a certain time period (5 years in this study) a nursing home risk perception.

Two recent papers have analyzed nursing home risk perception measures similar to the one used in this paper in order to better understand the properties of those measures and to assess their usefulness in modeling life-cycle decision making and behavior (Holden, McBride, and Perozek 1997; Lindrooth, Hoerger, and Norton 2000). Both papers used a single cross-section of their respective database: the Health and Retirement Study (Holden, McBride, and Perozek 1997) and the Asset and Health Dynamics Among the Oldest Old (AHEAD) database, which we also used (Lindrooth, Hoerger, and Norton 2000) to investigate the correlates of the nursing home risk perception measure. In both cases, the nursing home risk perception measure correlated in a plausible manner with observed variables known to influence nursing home entry, leading the authors to conclude that the measure was likely a useful tool for understanding decision making related to nursing home entry. For example, Lindrooth, Hoerger, and Norton (2000) found that persons with more limitations in BADLs reported a higher nursing home risk perception, meaning persons who were more disabled thought they had a higher likelihood of moving to a nursing home within 5 years, which is plausible. While cross-sectional analyses such as these are useful in identifying the potential value of a nursing home risk perception measure, their cross-sectional design does not allow one to document the predictive validity of the measure, or determine the extent to which the risk perception would remain a significant predictor of nursing home entry net of other observed variables known to predict entry.