AARP
"...unlike health care, LTCSS insurance is a case of incomplete welfare-related insurance as people fail to purchase insurance when its optimal to do so, leaving people in need of care to rely on public support, if and when available, or, if affordable, to self-insure."

With rapid population aging, expenditure on long term care services and supports (LTCSS) or care for the dependent elderly has risen faster than health expenditure. At the same time, changes in the family structure and increased female labor-market participation are responsible for a decline in the supply of informal caregivers. Both aging and social change can reasonably lead us to expect growing reliance on formal LTCSS funded by either insurance markets, welfare programs or, by, default individual out of pocket contributions. However, such a shift in the use of LTC has important economic implications insofar as the cost of LTC in Europe, and in OECD countries, has traditionally been borne by either families or by the public purse to a great extent when fiscal conditions have been favorable.

 

Spending on LTC in OECD countries averaged 1.5 percent of GDP in 2008, but, based on current trends, it is predicted to more than double by 2050 (Colombo and Mercier, 2012). This does not include the value of informal care, which, in the US, is estimated to amount to the expenses of the whole Medicare program (AARP, 2007). However, unlike health care, LTCSS insurance is a case of incomplete welfare-related insurance as people fail to purchase insurance when its optimal to do so, leaving people in need of care to rely on public support, if and when available, or, if affordable, to self-insure (Frank, 2012).

 

This article examines methods, instruments, and evidence of long term care reform in several European countries.

 

Funding schemes

 

Most European countries exhibit some form of entitlement program to pay for LTCSS, and all have adopted different forms of ex-post financing.  However, these schemes are conditioned by means testing, needs testing, and a heterogeneous array of cost-sharing mechanisms and entitlements targeting specific populations. In most European countries and in the United States, informal care is still the main source of LTCSS. Similarly, in many countries, such as Italy, proposals to expand funding for LTC did not manage to obtain sufficient support. Even in the United States, a proposal to expand ex-ante mechanisms the Affordable Care Act did not gain sufficient backing and was ultimately dropped.

In classifying the existing financial schemes, a distinction should be made between the type of care covered (e.g., in institutions and in the community) and the typle of financing (eg., in kind, in cash or a combination of the two). Typically, cash payments provide for choice but at the cost of promoting the status quo of family care (e.g., Austria, France, Italy). Some leave the choice to the beneficiaries (e.g., Netherlands, Germany, Italy, England, Spain) by developing personal budgets as in the United Kingdom. In kind payments, on the other hand, involve more complex planning of service needs. Differences also exist in the extent of coverage. Whilst some systems include services for institutional and home settings, some also include support for returning to home and auxiliary devices (e.g., some Nordic countries). In contrast, some systems rely mostly on reimbursing care and cash transfers, entailing the risk of cost shifting, while others limit entitlement to need (e.g., France, Australia, Spain).  Another important distinction can be made between catastrophic and non-catastrophic risks. Catastrophic risks call for the consideration of high deductibles, whilst non-catastrophic risks call for an expansion of health insurance schemes to reduce inefficiencies of generous health coverage combined with limited insurance. The latter includes bed blocking, avoidable re-hospitalizations and the like.

Additionally, another important dimension is the level of cost sharing, which is a fixed proportion of LTC expenditure in Nordic countries but defined residually in most countries that have social insurance (e.g., Germany, Australia, Austria, France). A recent UK proposal provides for an upfront deductible of £35,000 (see the Dilnot Commission (2011). In some countries, access to LTC is explicitly recognized as an entitlement whereas in others there is no explicit recognition. Also, some countries grant universal access (or coverage) based on need, whilst others rely on different forms of means testing to determine the level of cost sharing (Costa-Font, 2010a). In the United States, Medicaid (the government health insurance program for low-income people) funds 44 percent of LTCSS expenditures with 19 percent paid out of pocket. The only ex-ante mechanism available is private health insurance, which covers 6.4 percent of the population.

Finally, care can be financed and provided by different levels of government including the local level (e.g., the UK, France and Nordic countries), the regional level (e.g., Germany and Spain), and the national level (e.g., France). Generally, one observes a mix of ex-ante and ex-post financing mechanisms in different proportions.

Funding LTSS

Social Insurance

LTCSS have been integrated into social insurance in several countries, among them Germany, the Netherlands, and Austria. With the exception of Belgium, where it is separate from health insurance; however, it is funded by employer contributions which may affect the elderly and may be partly subsidized by the government, resulting in differences in the extent of government participation in the funding of LTC. Benefits are defined in terms of a fixed reimbursement of cost, as in Germany, or as a percentage of cost, causing benefits to automatically increase with cost. In the province of Flanders (e.g., Belgium), social LTC insurance pays out cash benefits. In France, social health insurance covers the cost of nursing home care and provides cash benefits for care provided at the beneficiary’s home. In Switzerland, the medical component of nursing home care is covered by mandatory health insurance, complemented by means-tested disability benefits to pay for care provided in the beneficiary’s home. Finally, some communities run nursing homes with accommodation rates which are regulated to be affordable.

Tax-financed schemes

In Nordic countries (Norway, Sweden, Denmark, Finland) general taxation is used to fund universal comprehensive packages which include LTC services that are delivered locally or regionally (e.g., Denmark). A few other European countries are moving in this direction as well. For instance, Spain introduced a tax-funded scheme to be completed by 2015, with regional governments matching the national government to finance LTC services on a means-tested basis (Costa-Font and Font -Vilalta, 2006). In Scotland, a tax-funded scheme guarantees free access to LTC subject to needs testing, which is in contrast to England).

In England, funding is primarily from general taxation, raised in part by the central government and in part by local jurisdictions. Recent legislation has required local governments to offer cash as an alternative to in-kind services, called “Direct Payments,” in order to increase consumer choice and control. A Royal Commission report in 1999 recommended that both nursing care and personal care, for both institutional and home-based services, be covered by general taxation. In 2006, the Wanless Commission called for partnership schemes. Recently, the Dilnot Commission (2011) proposed the introduction of deductibles, as they are common in health insurance.

Conclusion

Evidence from several European countries suggests that there is significant heterogeneity in total and public LTC expenditure, which ranges from 3.7 percent of GDP in the Netherlands to 0.2 percent in Portugal, with the OECD average at 1.5 percent of GDP.  Eastern and Southern European countries exhibit both limited public and private LTC insurance development. This is consistent with a preponderance of family bailout, mainly in the guise of informal care provided. Whilst some social insurance expansion has taken place in the Netherlands, Germany and Austria tax funded reforms have taken place in Spain, we observe that countries with generous social insurance exhibit financial sustainability constraints, and countries that fund LTCSS by means of general taxation cannot assure the continuity of funding, which leads to a shrinking of the entitlement. (Costa-Font, 2010b). The latter picture is complemented by the absence of a voluntary insurance market (with the exception of France) and the high reliance on informal care and self-insurance, alongside local government support which is generally means tested and restricted to those who are heavily impoverished.

References

AARP (2007). Valuing the invaluable: A New look at the Economic Value of Family Caregiving.   AARP Public Policy Institute, Washighton.

Colombo, F and J, Mercier (2012).Help Wanted? Fair and Sustainable Financing of Long-term Care Services Appl. Econ. Perspect. Pol. 34(2): 316-332

 Costa-Font, J., (2010a), “Family ties and the crowding out of long-term care insurance”, Oxford Review of economic policy, 26 (4), 691-712.

Costa-Font, Joan (2010b) Devolution, diversity and welfare reform: long-term care in the ‘Latin Rim’. Social policy & administration, 44 (4). pp. 481-494

Costa-Font, J and Font-Vilalta, M (2006). The Limits to the Design of Long Term Care Insurance Schemes: the Spanish Experience in Comparative Research. International Social Security Review, 59(4): 91-110

Frank, R (2012). Long-term Care Financing in the United States: Sources and Institutions. Appl. Econ. Perspect. Pol. 34(2): 333-345.

 About the author

Joan Costa-i-Font is a Reader in Political Economy at the London School of Economics and Political Science (LSE) where he collaborates with two research centers: the Centre of Economic Performance (CEP) and LSE Health & Social Care. He is Harkness fellow at the Department of Health Policy and Management, Harvard University and Network Research Fellow of CESIfo. Joan has held teaching or research posts at Oxford University, the University of Munich, University of Barcelona and the Iberoamerican University in Mexico City. His research and teaching aims at using economics and related analysis to improve the institutional design of health and social policies, and broadly falls in at least one (or more) of the following research areas: ‘health economics’, ‘political economy’ and ‘social economics’. His published work can be found in leading economic and public policy journals such as the Journal of the European Economic Association, Economica, Economic Policy, Oxford Review of Economic Policy, Public Choice, Health Economics and the Journal of the Royal Statistical Society.

 
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