Association for Public Policy Analysis & Management

Not only is institutional care burdensome on Federal and state budgets, it is also widely unpopular as most seniors prefer to receive long-term care services in their residences and communities. High costs and changing consumer preferences have motivated state officials to search for means to divert or delay individuals from entering nursing facilities. However, existing efforts – mainly focused on “rebalancing,” or shifting Medicaid spending from institutional to home and community based services – have achieved only modest success in reducing nursing home utilization (Weissert and Frederick, 2013; Kane et al., 2012).

Past research presents consistent evidence that family members are the main source of care for elderly people with care needs (Wolf, 2014), and that receiving informal care substantially lowers the probability of institutionalization (Lo Sasso and Johnson, 2002; Van Houtven and Norton, 2004; Charles and Sevak, 2005). Together, these findings suggest that policies that encourage informal caregiving might reduce nursing home usage. In recent years, paid family leave (PFL), which provides eligible workers with partial wage replacement when taking time off from work to care for newborns or seriously ill family members, has gained prominence as one such policy. However the effect of PFL on nursing home utilization among the elderly has not been examined.

In this paper, we evaluate whether the PFL program influenced aggregate nursing home use in California over the 1999-2008 period using state-level panel data and a difference-in-differences approach. We include state and year fixed effects as well as state-specific linear time trends along with observed time-varying covariates. We also test the robustness of our findings by using two alternative control groups and by conducting a variety of placebo and falsification tests. In particular, given the presence of only one treated group (i.e., California), we assess the consistency of our estimates by applying the approach proposed by Conley and Taber (2011). Our results consistently show that implementing a paid family leave law reduced the proportion of elderly in nursing homes in California, with estimates ranging from –0.0020 to –0.0025 depending on which states comprise the comparison group. For California, this represents a relative decline of 3.5% to 4.4% in elderly nursing home utilization. This reduction is favorable from both a service usage and a cost-benefit perspective.

The main contribution of this paper is that it analyzes a previously understudied dimension of the PFL program. Existing research on the consequences of paid leave has focused mainly on parents’ leave-taking and labor market behavior related to child care and on children’s health outcomes. We extend this literature by studying a connected, yet possibly unexpected consequence of PFL: aggregate nursing home usage. To our knowledge, there have been no formal evaluations of PFL policies on LTC outcomes. In view of population aging and the high costs of nursing facility care, our results may have important implications for LTC financing in the U.S.