Hybrideseminar – Means-tested social insurance and strategic asset spend-down: Evidence from Medicaid asset look-back policies

Exploring a unique policy change in Medicaid asset tests, this paper provides evidence of strategic asset spend-down under means-tested social insurance. We find that, in response to more stringent penalties on asset transfers, married seniors with high expectations of future nursing home use significantly reduced their assets relative to married seniors with low expectations. Specifically, a 10 percentage point increase in the subjective probability of future nursing home use was associated with a 6 percent spend-down of assets subject to Medicaid eligibility tests, shortly after the more stringent penalties took effect.  Further analyses show that consumption responded minimally, suggesting that asset transfers accounted for the bulk of the observed spend-down. Our results suggest that more stringent penalties on asset transfers change the timing of transfers but do not deter them.