Formal long-term care expansions and their ripple effects on family care, health, and work

Populations worldwide are aging, intensifying the challenge of meeting long-term care (LTC) needs. While formal LTC programs aim to address this demand, less is known about how they interact with informal caregiving and affect caregiver health and labor outcomes. This paper exploits the staggered expansion of Medicaid Home and Community-Based Services (HCBS) waivers across U.S. states to examine these effects. Using data from 1998 to 2018 with approximately 20,600 observations, our sample consists of individuals aged 40-70 who are initially healthy and report no activities of daily living (ADL) limitations, allowing us to assess their responses to expanded formal care availability for their parents. We implement a two-way fixed effects difference-in-differences (TWFE DiD) framework to estimate causal effects. We find that HCBS expansions increase the likelihood of providing any informal care by 5 percentage points (14% relative to the mean), personal care by 2 percentage points (20%), and errands by 5 percentage points (14%). These increases are temporary, vanishing within two to three years. Short-run health declines and small labor force reductions follow the same pattern, with no persistent adverse effects. Our findings challenge the view that formal and informal care are solely substitutes. HCBS can complement certain non-intensive caregiving activities without long-term harm, highlighting the need for LTC policies that account for the dynamic relationship between formal services and family care.