| Background. Informal care of the elderly by their adult children is a common form of long-term care, is often preferred by the elderly to formal care, and can reduce medical expenditures if it substitutes for formal care. Much work has been done to characterize informal caregivers. However, there is a dearth of research quantifying informal care's effect on subsequent formal care use, beyond knowing that informal care can both replace and supplement formal care. Objective. This study helps to assess the merit of proposals to support informal caregivers, such as through tax breaks or respite care programs. I use two waves of the Asset and Health Dynamics Among the Oldest-Old survey to answer the following question: Does informal care of elderly parents by their children reduce formal care use? I examine home health care, nursing home care, hospital care, outpatient surgery, and doctor's visits. Methods. I use two-part models to predict the immediate and medium-term effects of informal care on formal care use of the single elderly. Because informal care can both precede and follow formal care, I use two-step instrumental variables estimation and lagged informal care to control for endogeneity. Results. Elderly who received informal care were 72 percent less likely to use home health care and 89 percent less likely to use nursing home care in the next three years than those who did not. Doctor's visits fell slightly in the short-term for informal care recipients (2 percent), while the risk of outpatient surgery fell dramatically (by 43 percent) two years later. Caregiving did not significantly affect hospital use. Specification tests show that simultaneity exists between informal and formal care. Conclusions. Controlling for endogeneity is essential to correctly inform the policy process that informal care drastically reduces home health care and nursing home use. If informal care is the type of care that elderly prefer, tax breaks, as well as caregiver training, respite care, and increased workplace flexibility could all be considered as policies to help the supply of informal care meet burgeoning demand. Such policies may be more cost-effective than funneling money into Medicare or Medicaid directly. |
