Nursing Homes in Equilibrium: Implications for Long-term Care Policies

Published: 2020


We build an equilibrium model of the market for nursing home care with decision-makers on both sides of the market. The nursing home demand arises as a result of stochastic dynamic optimizations by households heterogeneous in age, health, wealth; and the cost of home-and-community-based care. On the supply side, locally competitive nursing homes decide prices and care intensity. The government pays for the long-term care of the poorest. We estimate the model parameters using Health and Retirement Survey and simulate the model to quantitatively evaluate the effects of long-term care policies on prices, intensities, care allocation, and welfare.

Key Findings

    • Our model successfully generates the observed allocation of individuals with long-term care needs across nursing homes and home-and-community-based care by household demographic and financial characteristics.
    • Our policy experiments show that the reactions from both sides of the market are important for accurately assessing the aggregate and distributional impact of each policy and even more so for evaluating policy efficiency.
    • A home-and-community-based care (HCBC) subsidy for individuals with no family support turns out to be particularly efficient. This policy benefits both households and nursing homes while reducing the public program expenditures.


Koreshkova, Tatyana and Minjoon Lee. 2020. “Nursing Homes in Equilibrium: Implications for Long-term Care Policies.” Ann Arbor, MI. University of Michigan Retirement and Disability Research Center (MRDRC) Working Paper; MRDRC WP 2020-414.