Each year TIAA-CREF presents the 2008 TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security to authors of an academic research publication containing ideas that the public and private sectors can use to maintain and improve Americans’ financial well being.
The 2008 award goes to an ILLINOIS Finance professor, Jeffrey R. Brown and his coauthor, Amy Finkelstein at MIT. Their paper, The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market, considers how even incomplete public insurance can crowd out private insurance demand.
The award is named in honor of the MIT Professor of Economics, Emeritus, Nobel Laureate and former CREF trustee. It will be awarded next January at a special ceremony and reception during the Allied Social Science Associations annual convention in San Francisco. The authors will share a $10,000 gift.
Jeffrey Brown is the William Karnes Professor of Finance in the College of Business at the University of Illinois at Urbana-Champaign. He also serves as Director of the College of Business’ Center on Business and Public Policy, and as Associate Director of the NBER Retirement Research Center. Prior to joining the Illinois faculty, Dr. Brown was an assistant professor of public policy at Harvard University’s John F. Kennedy School of Government. During 2001-2002, he served as Senior Economist at the White House Council of Economic Advisers, where he focused primarily on Social Security, pension reform, and terrorism risk insurance. During 2001 he also served on the staff of the President’s Commission to Strengthen Social Security. In 2006, President Bush nominated, and the Senate confirmed, Dr. Brown as a member of the Social Security Advisory Board.
Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market
Long-term care expenditures represent one of the largest uninsured financial risks facing elderly Americans and constitute about 8.5 percent of total health expenditures for all ages. Yet most of the expenditure risk is uninsured: only 4 percent of long-term care expenditures are paid for by private insurance, while one-third are paid for out-of-pocket. The underlying causes for the limited size of the long-term care insurance market have important implications for the financial well-being of the elderly, as well as affecting both financial service providers and policy makers in their attempts to stimulate demand for private insurance.
Brown and Finkelstein provide fundamental new insights into the interaction of public and private insurance markets for long-term care. They show that Medicaid imposes a large implicit tax on private insurance policies, thereby providing a sufficient reason for why most elderly households do not purchase long-term care insurance. However, because Medicaid provides very incomplete insurance for most individuals, it exposes most elderly households to substantial long-term care expenditure risk. They show that current public policies to increase private insurance are ineffective because they do not reduce Medicaid’s implicit tax. Financial service sector attempts to stimulate demand for long-term care insurance are also hampered by the difficulty in designing contracts that avoid Medicaid’s implicit tax. These insights have important implications for the future design of both public and private insurance programs.