Moral Hazard and Cash Benefits in Long-term Home Care

This paper tests empirically for ex-post moral hazard in a system based on demandside
subsidies. In the Netherlands, demand-side subsidies were introduced in 1996.
Clients receive a cash benefit to purchase the type of home care (housework,
personal care, support with mobility, organisational tasks or social support) they
need from the care supplier of their choice (private care provider, regular care
agency, commercial care agency or paid informal care provider). Furthermore, they
negotiate with the care supplier about price and quantity. Our main findings are the
following. 1) The component of the cash benefit a client has no residual claimant on,
has a positive impact on the price of care. 2) In contrast, the components of the
cash benefit a client has residual claimant on, have no or a negative impact on the
price of care. Both results point at the existence of ex-post moral hazard in a system
of demand-side subsidies