Despite a significant policy shift from institutional to home-based care for older adults, evidence on the effectiveness of policies incentivizing home care is limited. This study provides novel evidence on the causal effect of public home-based care on the mental health and well-being of older people. To address endogenous selection, we implement a novel instrumental variable approach that exploits eligibility rules for long-term care as defined in national legislations. We link longitudinal data from the Survey of Health, Aging & Retirement in Europe (SHARE, 2004–2017) to national LTC eligibility rules in France, Germany, Spain and Belgium (disaggregated for Wallonia and Flanders regions) and examine how exogenous variation in the use of long-term care caused by varying eligibility rules impacts depressive symptoms (EURO-D scale), quality of life (CASP scale) and loneliness (R-UCLA scale). We find that receiving formal home-based care significantly reduces depressive symptom scores by 2.6 points (large effect size measured by Cohen's d) and the risk of depression by 13 percentage points. The use of home-based formal care also increases quality of life as measured by the CASP scale, particularly by increasing feelings of control over life. We show that one potential mechanism involves the impact of home-based care on loneliness: we estimate that receiving formal home-based care reduces the risk of loneliness by 6.7 percentage points. Our results provide evidence that an increase in home-based care coverage is justified in terms of improved mental health and well-being outcomes for older people.
