Financing and Organising
Long-Term Care
Adelina Comas-Herrera
Personal Social Services Research Unit
LSE Health and Social Care
9th February 2012
LUISS, Rome
Outline
• Introduction
• Criteria to assess LTC financing models
• LTC financing: revenue raising and resource
allocation.
• Assessing economic sustainability
What is long-term care?
• Aims to:
– reduce, lessen consequences of, or
compensate for disability, cognitive
impairment and loneliness; improve quality of
life.
• Services are delivered in:
– peoples’ own homes (home help, meals,
nursing care)
– or in substitute care settings (residential care
homes, nursing homes, hospitals)
What is Long-Term Care (cont.)?
• Support is provided by:
– Unpaid carers and formal care providers (public,
private and voluntary sector), largely unskilled
• Support is provided in:
– everyday tasks, including dressing, bathing,
shopping, cooking, cleaning, therapy
• Main client group: older people
Health Care vs. Long-Term Care
• Most people will need
health care, and at more
than one point of their life
• Health care costs are mostly
covered by public system,
considered public
responsibility
• Health care is mostly
delivered by highly
specialised professionals
• 1 in 3 people will need longterm care (usually at the
end of their life), many will
not need it at all
• LTC is a result of health
problems, but financed
differently than health care
=> sense of unfairness and
lack of planning
• Most LTC is provided by
unpaid carers. Substitution
between formal and
informal care
LTC in transition
• Traditionally, as relatively unskilled service, LTC was provided
almost entirely by the informal sector, with the formal sector
only stepping in when informal care not available.
• Demographic, epidemiological, social and economic changes
have brought about the “formalisation” of LTC.
– Demography & epidemiology: People living longer=> more people
susceptible to disabling chronic conditions => more people are
needing LTC and for longer
– Social changes: Increases of female labour force participation,
increased geographical mobility, societal concern for heavy burden
experienced by carers
• Tightening of public health care budgets, specially in the late
80s/early 90s involved a re-definition of what is health care
(publicly funded) and what is social care (mostly private
responsibility).
LTC systems:
catching up with the times
• Most Long-Term Care models have evolved gradually,
with the formal sector expanding to fill in the gaps left by
informal care.
• Some countries, particularly Scandinavia, have absorbed
LTC as part of their relatively generous tax-funded
welfare state.
• Countries, such as Japan and Germany have created
new social insurance systems (with some tax-funded
elements).
• Many countries such as the UK, France (Italy?) continue
to debate how to reform their LTC system, with the
difficult economic climate making things harder.
How well do LTC systems work?
Criteria for assessment
• Efficiency
• Equity
• Economic and political sustainability
• Promotion of dignity, choice and
independence
• Degree of risk protection
Efficiency
– Maximising quantity and quality of outputs for a given
level of expenditure
– Minimising the cost of achieving a specified level of output
or effectiveness.
– Outputs in social care: impact on users and care-givers
rather than “service output”.
• impact on a user of a given service will depend on the needs and
characteristics of that user, and the quality of the service.
– Incentives generated by the financing system: need to
make sure they do not encourage inefficient use of
resources.
Equity
• Widely accepted objective of public LTC systems, but not usually well
defined.
• Generally understood as a fair distribution of resources and burdens.
• Affects both revenue raising and resource allocation.
– Revenue raising
• Horizontal equity: people with same income and capital would pay the same
towards LTC.
• Vertical equity: extend to which funds are raised in a progressive, proportional or
regressive way.
– Resource allocation
•
•
•
•
Equity of access
Equity in levels of mix and services relative to needs
Equity of outcomes, including outcomes for unpaid carers
A major challenge: measurement of needs and outcomes
• Fairness between generations.
Promotion of dignity, choice and
independence
• Ensuring LTC system does not limit choice too
much, distort preferences through
unsatisfactory incentives or creates stigma.
• Consider how charging policies affect the
dignity of care users and ensure they are left
with enough resources for daily expenses.
• Implications of the financing system for the
dignity, choice and independence of unpaid
carers.
Economic, fiscal and political
sustainability
– Degree of public support
• Social preferences and expectations of the population.
• Public confidence: does the system target resources to the “right” people
and for the “right” care.
• Will the system provide adequate support should they need it?
– Economic vs. fiscal sustainability
• Economic sustainability: value produced vs. opportunity costs.
• Fiscal sustainability:
– Extent to which growth in LTC expenditure rises faster than public revenues
– Extent to which public expenditure in one area crowds-out other areas of
public spending
– Ideally an LTC financing system would have a high degree of flexibility
to adapt to changing demographic, social and economic
circumstances.
Long-term care models
• Great variability in the models of LTC adopted by
different countries, with almost no “pure models”
that fit neatly into typologies.
• Most countries, until recently, have had complex
arrangements evolved from social assistance and the
health care systems, to fill in gaps in the availability
of family care.
• “Traditional” division between tax-based universal
systems, social insurance systems and residual
systems is blurring.
• It may be more useful to analyze the “menu” of
policy choices available to policy-makers.
Long-term care ‘components’:
a key distinction
Revenue raising mechanisms
Resource allocation mechanisms
Revenue raising mechanisms
• Unpaid care
• private savings: perhaps with special savings accounts
or use of housing equity
• private insurance: perhaps linked to pension or life
insurance
• private insurance with public sector support: e.g.
subsidy or tax concession
• public-sector tax-based support: funded from general
taxation; usually allocated according to need and, in
most countries, ability to pay
• social insurance: hypothecated payments; allocated
according to needs and contributions.
LTC revenue-raising:
lessons to date?
• Risk-pooling through insurance is more efficient than
savings, and also redistributes resources to those with
greater care needs.
• But private insurance has problems: market failure,
affordability and equity.
• Public sector funding schemes allow both insurance and
redistribution.
• Social insurance systems tend to be more generous (and
expensive) and have clear entitlement rules.
• Most countries have chosen a system consistent with
health financing.
Resource allocation options
• Health vs. social care funding divide and integration
• Safety-net vs. universal entitlement
• Algorithms assigning needs to pre-defined benefits vs.
care management
• Types of benefits: cash vs. services
• Carer-blind vs. carer-sensitive
Health and Social care:
funding divide vs. integration
• Health care is free at the point of use, whereas social
care is often means-tested or attracts co-payment.
• The boundaries between health and social care are
unclear and there is both opportunities and incentives for
cost-shifting (specially from health to social).
• Different professional traditions and organisational
structures make integration of health and social care
very challenging.
– Lack of integration results in less prevention than would be
optimal:
• Better management of chronic conditions by health sector => less
need for LTC
• Better social care can prevent costly hospital admissions.
Safety-net vs. universal entitlement
and the middle way
• Provision of a minimum safety net
– Public support for those unable to afford services.
– Usually very cash-constrained systems, unresponsive to changes in need.
– Tough financial and needs-based eligibility criteria, tend to generate unmet
need.
– Incentives to asset depletion and income minimisation
– Stigmatisation of service users.
• Universal entitlement systems
– Cover for the entire population, irrespective of means.
– Tax and social insurance funded (usually progressive)
• Progressive universalism mechanisms
– An increasing number of countries are adopting a combination of universal
entitlement to public help with a means-tested element.
Assigning needs to benefits
vs. care management
• Social insurance systems tend to have algorithms
that assign pre-defined benefits to particular levels
of need.
• In tax-based systems (traditionally) care managers
assess individual needs and assign personal packages
of care.
• Algorithms are clear and transparent, but may lack
flexibility in the way resources are allocated, in
particular difficulties reflecting needs arising from
cognitive impairment.
Cash benefits vs. services
• Increasing use of cash benefits instead of services inkind.
• More attractive to service users, and in theory more
efficient.
• Great diversity in the types of cash benefits available
in different countries.
• But: what are the outcomes users and their carers?
– Concerns about unregulated employment and potential
exploitation
– Difficulties with quality control and safeguards
– Organising one’s own care may create stress
Carer-blind vs. carer-sensitive
• Carer-blind systems: assign benefits
irrespective of whether informal carer is
available. More common in social insurance
systems.
• Carer-sensitive: the allocation of services
reflects the availability of a carer. More
common in safety-net type of systems.
Economic sustainability:
Determinants of future LTC expenditure
•
•
•
•
•
•
•
•
Demographic changes.
Trends in functional dependency/cognitive impairment.
Availability (and propensity to provide) informal care.
Structure of the LTC system and patterns of care.
Financing system.
Relative price of LTC and other goods and services.
Economic growth and other macroeconomic factors.
Values and public expectations about the quality, range
and level of care.
• Other factors? Quality/adaptability of housing, pensions…
Funnel of doubt:
Long-term care expenditure in the UK as % of GDP
Comparative base case
4
Using marital status
projections
Low Eurostat
3.5
3
High Eurostat
2.5
0.5 years delay dep.
2
1.5
1 year delay dep.
1
Grow th w ith GDP diff.
0.5
0
2000
Wages 0.5% slow er GDP
2050
Wages 0.5% faster GDP
Rise in formal home care
Examples of impact of the design of
the financing system on economic
sustainability
• Means-tests:
– Affect the share of public/private expenditure.
– affect the relative price of care at the point of use and ability to pay, so
different means-tests will have different demand effects.
• Indexation of benefits (e.g. initially the German social insurance benefits
did not grow even in nominal terms).
• Through creating incentives to use different types of care, which have
different costs (and possibly outcomes):
– Formal vs. informal care
– Residential vs. home-based care
– Regular workforce vs. grey labour market.
Public LTC expenditure as % of GDP, 2004-2050, EU15
Assuming that, up to 2020, the proportion of people the proportion of
people without formal services decreases by 1% p.a.
8
7
6
5
2004
4
2050 base
3
2050 new
2
1
0
BE
DK
DE
ES
IE
Source: DG ECFIN, 2006
IT
LU
NL
AT
FI
SE
UK
LTC systems and economic
sustainability
• Although demography is a major driver of LTC
expenditure, other changes, such as shifts from
unpaid care to paid care may have an even bigger
impact in a number of European countries.
• And, finally, affordability is largely measured as a %
of GDP (mostly from “official” economic forecasts),
different rates of economic growth will be the key to
what can or cannot be afforded.
Projected growth in Long-Term Care
Expenditure between 2000 and 2050:
112%
138%
149%
168%
Relative
expenditure
(as % of GDP)
392%
378%
Absolute
expenditure
UK
Italy
Spain
Germany
509%
437%
0%
100% 200% 300% 400% 500% 600%
Source: Comas-Herrera A. and Wittenberg R. (eds) 2003 European study of Long-Term Care Expenditure
http://ec.europa.eu/employment_social/social_situation/docs/european_study_long_term_care_en.pdf
Challenges for the future
• Better integration of health and social care to eliminate
perverse incentives
• Gaining a better understanding of how to improve
efficiency in LTC (ideally, spend the same and achieve
better outcomes).
• Ensuring there is a sufficient, safe and qualified
workforce available.
• Improve protection against the risk of catastrophic costs.
• Ultimately, ensure we find better (and fairer) ways of
combining public and private funding to guarantee high
quality LTC.
For more information
• Email: a.comas@lse.ac.uk
• http://www2.lse.ac.uk/LSEHealthAndSocia
lCare/aboutUs/PSSRU/home.aspx
• Highly recommended:
– International Long-Term Care Policy Network:
http://ilpnetwork.net/
• And follow us on Twitter: @PSSRU_LSE
and @ILPNetwork