Policy Dilemmas in Financing Long‐term Care in Europe
| Author | Peter Zweifel,Christophe Courbage,Joan Costa‐Font |
| Date | 01 March 2017 |
| Published date | 01 March 2017 |
| DOI | http://doi.org/10.1111/1758-5899.12213 |
Policy Dilemmas in Financing Long-term Care
in Europe
Joan Costa-Font
London School of Economics
Christophe Courbage
Haute Ecole de Gestion de Gen
eve
Peter Zweifel
University of Zurich
Abstract
Long-term care (LTC) is the largest insurable risk facing the elderly in most high-income countries. Paradoxically, institutional
responses to the need to insure ex ante (i.e. before the contingency occurs) the financial risks of needing LTC, either through
social, private, or self insurance, exhibit limited development. In contrast, mechanisms to finance LTC ex post continue to
develop, primarily those supported by the public sector (i.e. subsidies or tax deductions) and the family (i.e. intergenerational
transfers). Both ex ante and ex post types of financing mechanisms are found to be subject to shortcomings which give rise to
dilemmas for public policy. Governments confront these dilemmas in different ways, causing a great deal of heterogeneity in
the financing and provision of LTC services across Europe.
Long-term care (LTC) is defined as ‘a range of services
required by persons with a reduced degree of functional
capacity, physical or cognitive, and who are consequently
dependent for an extended period of time on help with basic
activities of daily living’(Colombo and Mercier, 2012).
The ageing of populations is expected to be accompanied
by an increase in the need for LTC services.
1
Demand
expansion takes place in a gradual way, but expenditure on
LTC has been rising even faster than that on general health
care. More specifically, while spending on LTC in Organiza-
tion for Economic Cooperation and Development (OECD)
member countries averaged 1.5 per cent of GDP in 2008,
this share is predicted to more than double by 2050 given
current trends (Colombo and Mercier, 2012). This pace of
growth cannot be explained by the increasing demand due
to population ageing alone. Rather, other social determi-
nants are at play, including the simultaneous decline in the
supply of informal caregiving caused by changes in family
structure and higher female labor-market participation (Pez-
zin and Steinberg Schone, 1999).
Given that these trends in ageing and social change are
likely to continue, one should expect a growing reliance on
formal LTC comprising personal care, community care, insti-
tutional care in nursing homes and assisted living facilities.
Although planning of old age dependency is not always
something individuals wish to do when young and healthy,
if they fail to pre-fund these services ex ante before the
need arises, they themselves, their family, or the state end
up facing potentially substantial costs ex post. Among alter-
native ways to pre-fund LTC risks, one can identify the fol-
lowing: insurance, public welfare, individual saving and
family support. In Europe and in OECD countries generally,
the cost of LTC has traditionally been borne by the elderly
and their families themselves or by the public purse, either
universally or as a payer of last resort. However, insurance
has exhibited very limited development (see Costa-Font and
Courbage (2012) for a survey of financing arrangements).
In view of predicted growth of LTC expenditure combined
with pressure to stabilize government expenditure, there
has been a growing interest in private LTC insurance as a
source of complementary finance or as an alternative to
self-insurance or public subsidization. However, some
observers point to the problem of adverse selection (i.e.
those with a high risk of being in need of LTC services typi-
cally buy LTC coverage). They advocate an extension of
social insurance (Barr, 2010), which instead is ill-suited to
control moral hazard (i.e. insurance coverage tends to
encourage over-utilization of the service covered). A major
problem with private insurance is that people think they
cannot afford it at an age when it would be optimal to pur-
chase it (Costa-Font and Font-Vilalta, 2009). This causes
many to rely on public support or to self-insure (i.e. to accu-
mulate extra savings to cover the cost of LTC). This is in
sharp contrast with the risk characteristics of LTC, which
support the need for greater insurance coverage. With 35–
50 per cent of the elderly population using LTC during their
©2016 University of Durham and John Wiley & Sons, Ltd. Global Policy (2017) 8:Suppl.2 doi: 10.1111/1758-5899.12213
Global Policy Volume 8 . Supplement 2 . March 2017
38
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