Despite rapid growth in U.S. elderly population, the utilization of nursing facilities in the U.S. has decreased substantially since the 2000s. Previous literature has attributed the decline to the surge in alternative services such as in-home care. This paper explores a different explanation for this phenomenon. Using administrative data and a quasi-random variation in Medicare reimbursement policy, I find that a one percent increase in Medicare fees reduces Medicaid admissions to nursing facilities operating near capacity by two percent. I do not find evidence of increased access for new Medicare residents, but I find a one percent increase in Medicare readmissions of long-term residents. These findings show how changes in Medicare policy have fueled the shift in focusing on long-term care covered by Medicaid to short-term care covered by Medicare. It also illustrates how the existence of separate payment systems for Medicare and Medicaid have unintended negative consequences by reducing Medicaid beneficiaries’ access to long-term care.
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