E&F - lecture 14 Flashcards
Definition of long-term care (LTC)
Long-term care is a range of services needed for persons who are dependent on help with basic Activities of Daily Living (ADL), frequently in combination with help with basic medical services, e.g. wound dressing, pain management, medication, health monitoring, prevention, rehabilitation or palliative care services
* Includes informal care (mantelzorg), home health care, assisted living facilities, and nursing homes
* Largest share of LTC: elderly care (= focus of this lecture)
Major challenges for sustainable LTC (guaranteeing good quality care for the people in need in the future)
- Population ageing
- Increasing prevalence of chronic diseases (dementia)
- Changing preferences & expectations
- Availability of formal & informal care
- Limited productivity growth (Baumol’s cost disease)
- Constrained public resources; financing health with public sources
Is increasing age-related spending financially sustainable?
Projected growth of age-related spending by 2050 within OECD:
* Spending on old-age pension/early retirement programmes: 40%
* Health care spending: 50% at least
* LTC spending: double (200%) at least
In the context of constrained public resources
Leading to growing fiscal pressures to mitigate growth of public LTC expenditure
Baumol’s cost disease: particularly relevant for LTC
- Average labor productivity growth in LTC is substantially less than in the entire economy
− average annual productivity growth in the Netherlands 1972-2010:
1.8% in economy vs 0.2% in LTC (Wouterse & Smid 2017) - this is because the amount of labor is an important determinant of qulity of care
- Average wage growth in LTC similar to average wage growth in the economy
- Hence: LTC is becoming relatively more expensive
- Demand LTC does not decrease due to a quite inelastic demand
(partly as a result of public LTC insurance or payment) - Result: an increasing share of GDP spent on LTC
Care dependency
ratio between who probably need care and those who mainly provide care
Informal care: backbone of LTC provision
- But informal care cannot accommodate the expected increase in demand for LTC (Costa-Font et al. 2015)
- and reliance on informal care has important drawbacks:
− lower employment: a 1% increase in hours of care is associated with a 10% reduction in employment rate
− reduced working hours (especially intensive and co-residential caring)
− forgone tax revenues from reduced labor market participation
− e.g. in Germany estimated at 7.2% of average fiscal costs of LTC (Geyer et al. 2017)
− caregivers have more mental health problems (especially intensive caring)
Economic dependency
people who are dependent on the people that work (retired versus working)
Large differences in LTC financing and organization
Universalistic (e.g. Netherlands, Sweden, Norway, Denmark):
* provision of LTC is public responsibility
* public coverage for all
* comprehensive benefits
* limited cost-sharing (income-related)
* emphasis on formal care
Individualistic/targeted (e.g. Germany, Spain, Italy, UK, US):
* provision of LTC is private responsibility (often family)
* public coverage targeted at people with high need & low income/wealth (means tested)
* high cost-sharing
* emphasis on informal care
Convergence between LTC systems?
- Economic crisis (2008-2012) and concerns about ageing have resulted in a retrenchment of universalistic LTC systems
− reduction of public coverage
− more emphasis on role community and informal care - Ageing population and increasing pressure on informal caregivers have resulted in an expansion of public coverage in individualistic systems
− introduction and expansion of social LTC insurance in Japan (2000), South-Korea (2008) and Taiwan (2015)
− introduction of lifetime caps on private LTC costs in Australia & UK
How to finance future LTC expenses?
Most societies face a strongly growing demand for LTC:
* which implies a growing need of formal and informal care
* but a constrained supply of informal caregivers
* and constrained public resources
* while private savings and insurance for LTC are limited
The private LTC-insurance puzzle … explanations of the puzzle (supply)
Explanations for this puzzle?
* Supply-side limitations? (Cutler / Brown & Finkelstein)
− intertemporal risk (average risk changes over time)
− poor comprehensiveness of most LTC insurance products
− high premiums
- But are these explanations credible? (Brown & Finkelstein)
− insurers use the same premium for men and women
… while expected costs for women are much higher
… still women do not buy more LTC insurance than men
− more comprehensive policies available, but few buy them
Explanations for this puzzle? (demand)
Demand side limitations? Many hypotheses but limited evidence
* Rational demand restrictions:
− public funding crowds out private insurance
− other financial or in-kind substitutes for care (such as family)
− adverse selection
* Behavioral demand restrictions:
− poor understanding of products
− systematically underestimate risk
− high discount rate (time preference): people prefer money now over the future
− lack of trust in insurers (non-performance risk)
− overestimation of public provision/coverage
How to encourage the uptake of private LTC insurance?
- Tax subsidies (e.g. US, Spain, Austria)
- Employment-related insurance (e.g. US, France)
- Regulating LTC policies (premiums, enrollment) (e.g. US; not feasible within EU)
- Consumer education and information about risk and costs of LTC
- Automatic insurance with opting-out (Singapore)
- Combining with life insurance or pensions (extra premiums in return for fixed annuities in case of LTC need) (e.g. US, France, Canada, Australia)
Challenges for sustainable LTC
- Population ageing (demographic transition)
- Increasing prevalence of chronic diseases (dementia)
- Availability of informal and informal care
- Increasing expectations
- Constrained public reasons
- Baumol’s cost disease
Key challenges for sustainability of LTC
- Universalistic systems: financial sustainability
- Individualistic/ targeted systems: sustainability if provision
- Leading to convergence?
