January 2009


New York, NY - January 6, 2009 - The TIAA-CREF Institute presented the thirteenth annual TIAA-CREF Paul A. Samuelson Award for Outstanding Scholarly Writing on Lifelong Financial Security to Jeffrey R. Brown, William G. Karnes Professor of Finance, College of Business, University of Illinois at Urbana-Champaign and Amy Finkelstein, Professor of Economics, Massachusetts Institute of Technology for their ground-breaking paper, "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market."

The award is named after Nobel Prize winner Paul A. Samuelson in honor of his achievements in the field of economics, as well as for his service as a CREF trustee from 1974-1985.

Long-term healthcare represents a significant financial burden as America ages, and constitutes about 8.5 percent of total health expenditures, the paper shows. Yet, it is one of the largest uninsured financial risks seniors face today. Approximately two-thirds of the cost of long-term healthcare is paid through public funds, about a third is paid out-of-pocket and only four percent is paid through private insurance.

The authors examine why many seniors who face such significant financial long-term care expenditure risk do not purchase private insurance. Fundamental new insights revealed by Brown and Finkelstein show that the Medicaid program is responsible for most of the lack of demand for private long-term care insurance. Their results indicate that even the most well-intentioned government programs can have adverse effects on private markets and place many households’ financial security at risk.

"The winning authors document how the existence of Medicaid, which fails to cover everyone automatically, actually serves to 'crowd out' purchase and sale of private insurance," remarked Professor Paul A. Samuelson. "If the U.S. is to do a good job in ameliorating this glaring gap in the social safety net, it will rely on valuable studies such as this one."

"The research conducted by the winners will likely play a major role in the future design of products to manage long-term care needs in retirement and where and how individuals save for such expenses," said Madeleine d’Ambrosio, Vice President and Executive Director, the TIAA-CREF Institute. "This ties into the underlying goal of the Samuelson Award—to encourage and recognize rigorous exploration of critical financial issues that can lead to better financial products, services and decision-making by individuals, retirement plan sponsors, plan providers and policymakers."

Brown and Finkelstein’s findings suggest that in the absence of substantial Medicaid reform, households should save more in their retirement plans and rely on other types of tax-preferred savings programs to ensure that long-term care needs are covered. Their main findings show:

  • Medicaid imposes a large implicit tax (approaching 70 percent per dollar of benefits) on private insurance policies, thereby providing a strong incentive for most elderly households to decline private long-term care insurance. A large part of the premium for a private policy pays for benefits that simply replace benefits otherwise provided by the Medicaid system. However, because Medicaid provides very incomplete insurance for most individuals, it exposes most elderly households to substantial long-term care expenditure risk
  • Current public policies (such as tax subsidies and partnership programs) to increase private insurance are ineffective because they do not reduce Medicaid’s implicit tax.
  • Insurers attempting to encourage take-up of long-term care insurance are also hampered by the difficulty in designing contracts that avoid Medicaid’s implicit tax.

Professor Brown serves as Director of the College of Business’ Center on Business and Public Policy at the University of Illinois, and as Associate Director of the NBER Retirement Research Center. He is Research Associate of the National Bureau of Economic Research, a Faculty Affiliate of the Institute on Government and Policy Affairs, and a Fellow of the TIAA-CREF Institute, the Employee Benefits Research Institute, and the China Center for Insurance and Social Security Research. His research focuses on the interaction of public and private insurance markets, including annuities, life insurance, long-term care insurance, pensions and Social Security. Additional research interests include stock market participation, dividend taxation, and the effect of inheritances on labor supply.

Professor Finkelstein is Co-Director of the Public Economics Program at the National Bureau of Economic Research, where she is also a Research Associate. She is a Co-Editor of the Journal of Public Economics. Amy Finkelstein’s research is in the areas of public finance and health economics. Her two primary research interests are market failures and government intervention in insurance markets, and the impact of public policy on the health care sector.

The 2008 TIAA-CREF Paul A. Samuelson Award was presented in San Francisco on January 3, 2009 by the TIAA-CREF Institute during the Allied Social Science Associations annual meeting.

TIAA-CREF is a national financial services organization and the leading provider of retirement services in the academic, research, medical and cultural fields with more than $398 billion in combined assets under management (9/30/08).
To learn more about TIAA-CREF, please visit

About the TIAA-CREF Institute
The mission of the TIAA-CREF Institute, part of TIAA-CREF, is to foster objective research, build knowledge, support thought leadership, and enhance understanding of strategic issues related to higher education and lifelong financial security. For additional information regarding the TIAA-CREF Paul A. Samuelson Award and other TIAA-CREF Institute initiatives, please visit

Media Contact:
Jennifer Vollaro, Integrated Marketing Services, 1 609 683-9055 ext. 203,
Jennifer Compton, TIAA-CREF, 1 212 916-6066,

© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017