NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Economic Analysis of Life Care

Jonathan S. Feinstein, Edward G. Keating

NBER Working Paper No. 4155
Issued in September 1992
NBER Program(s):   HE

Life care communities offer long term care to the elderly in the context of a residential community. Residents move into a life care community while still relatively young (though typically past age 65), initially occupying an independent living unit situated in a living complex similar to a retirement community. Later, when a resident requires more intensive care, she moves to an on-site nursing facility. We present an economic analysis of the life care industry. Our model includes a detailed specification of elderly couples' utility, a description of elderly morbidity and mortality experiences, and a formulation of the life care contract. Using extensive computer simulations we show that life care offers two main advantages to elderly as compared with stand-alone nursing homes: (i) reduced mobility costs and nearness to spouse and friends when sick; and (ii) insurance, linked to a rebate paid to the couple's heirs. We also investigate regulation of life care and the effects stemming from the risk of operator bankruptcy.

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Document Object Identifier (DOI): 10.3386/w4155

 
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