Financing and Organising Long-Term Care

1. Financing and OrganisingLong-Term Care Adelina Comas-Herrera Personal Social Services Research Unit LSE Health and Social Care 9th February 2012 LUISS, Rome

2. Outline • Introduction • Criteria to assess LTC financing models • LTC financing: revenue raising and resource allocation. • Assessing economic sustainability

3. 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)

4. 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

5. 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 long-term 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 Health Carevs.Long-Term Care

6. 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).

7. 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.

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. Long-term care ‘components’: a key distinction Revenue raising mechanisms Resource allocation mechanisms

15. 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.

16. 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.

17. 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

18. 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.

19. 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.

20. 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.

21. Cash benefits vs. services • Increasing use of cash benefits instead of services in-kind. • 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

22. 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.

23. 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…

24. Funnel of doubt: Long-term care expenditure in the UK as % of GDP

25. 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.

26. Public LTC expenditure as % of GDP, 2004-2050, EU-15Assuming that, up to 2020, the proportion of people the proportion of people without formal services decreases by 1% p.a. Source: DG ECFIN, 2006

27. 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.

28. Projected growth in Long-Term Care Expenditure between 2000 and 2050: 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

29. 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.

30. For more information • Email: a.comas@lse.ac.uk • http://www2.lse.ac.uk/LSEHealthAndSocialCare/aboutUs/PSSRU/home.aspx • Highly recommended: • International Long-Term Care Policy Network: http://ilpnetwork.net/ • And follow us on Twitter: @PSSRU_LSE and @ILPNetwork