The substitutability of adult foster care for nursing home care in Oregon.

OBJECTIVES This study investigates the degree of substitutability of adult foster care for nursing home care in Oregon. METHODS Using three tests, the authors determined (1) the extent to which an additional adult foster care resident in a county reduces the number of nursing home residents in that county, (2) which characteristics of residents and facilities are important in sorting residents into either nursing homes or adult foster care facilities, and (3) the price elasticity of demand for adult foster care, using the county as the unit of observation. RESULTS It was found that for every additional foster care resident in a county, a nursing home loses 0.85 residents-almost a one-to-one substitution ratio. CONCLUSIONS Despite the high degree of substitutability, residents perceive important differences in the characteristics of the two forms of care. Indeed, private residents are, on average, willing to pay twice as much for nursing home care as for adult foster care, suggesting that these differences are important. Finally, private consumers are sensitive to price differences among adult foster care facilities. The implications for policy are discussed.