Federal Reserve Bank of Minneapolis
04/14/2025 | Press release | Distributed by Public on 04/14/2025 09:05
Scholar spotlight: Karen Kopecky
The research community at the Institute includes visiting scholars, consultants, economists, research analysts, and research assistants. These scholars bring varied backgrounds, interests, and expertise to research that deepens our understanding of economic opportunity and inclusion as well as policies that work to improve both.
Nursing homes are prohibitively expensive, to the point that many Americans 65 and over end up spending down their assets and becoming impoverished enough to qualify for government insurance. Yet, 90 percent of older adults don't buy long-term care insurance (LTCI) to avoid this risk.
Economist Karen Kopecky and her collaborators sought to explain this puzzle in a recent paper. What they found, she said, was a "dysfunctional" market with high premiums, limited coverage, and mismatched incentives.
Kopecky, the Institute's System affiliate from the Cleveland Fed, has long been interested in health inequality, such as how some people are more vulnerable to addiction or age-related diseases. "Economists often understate the importance of health inequality for economic outcomes," she said. "That's part of the reason I work on it."
"Economists often understate the importance of health inequality for economic outcomes."
-Karen Kopecky
These economic outcomes affect not just people with health vulnerabilities; they can shape the labor supply of those around them as well. For example, older people requiring long-term care often receive it from relatives, such as adult children, who may have to reduce working hours or forego careers.
Health inequality is present in the long-term care market, too. Care is expensive, and insurers have a hard time assessing how much care policyholders will need. Kopecky has shown that insurers respond by charging high premiums, providing only partial coverage, and denying coverage to the applicants with the worst health vulnerabilities.
Dysfunction in the LTCI market especially hurts middle-income older adults. Those with lower incomes already qualify for Medicaid, the government's health insurance program, while those with higher incomes can afford to self-insure. But high premiums and limited coverage cause many middle-income older adults to risk impoverishment from care expenses.
A potentially useful policy, Kopecky found, is to ease Medicaid asset requirements for those paying for LTCI to make that option more attractive. Older people benefit by not having to spend down as much of their assets to qualify for Medicaid. Insurers benefit from more customers. And the government benefits by not being the sole payer for Medicaid recipients.
"A lot of people think economics is just about economic indicators, or something along those lines. But economics is incredibly broad," Kopecky said.