Organizing and Financing Long-Term Care (LTC) Services for Older Population: What can we learn from the Global Literatur

2. Organizing and Financing Long-Term Care (LTC) Services for Older Population: What can we learn from the Global Literature? Sarbani Chakraborty, World Bank Long-term Care Workshop Sofia, Bulgaria December 9, 2010

3. The Context – “From Red to Gray” Eastern Europe is aging rapidly • The proportion of people aged 65+ will increase significantly over the next 20 years

4. Presentation Outline • Present a Framework for Financing and Organizing LTC services based on academic literature and country experience (Chakraborty) • Highlight features of OECD LTC systems and lessons learned (Koettl)

5. Why do we need a Framework? • Largely descriptive materials to date; • Insufficient attention on guiding Governments on public policy for LTC, especially role of public and private sectors; • Barrier to sound policy dialogue and identifying gaps and future policy options.

6. Questions Posed • Should the State finance LTC for all citizens, or is a safety net system that only protects those unable to pay for LTC adequate? • What are the equity and efficiency tradeoffs of different models of financing LTC? • Does a system of public and private contributions provide the best model for fair financing? • What is the optimal public/private provision mix in LTC services?

7. Long-Term CareIssues to Consider • Demand side • The changing age structure will lead to higher demand; • Ongoing medical and technical progress can lengthen time spent in disability; • Supply side • Transforming institutional care into ambulatory or home-care settings can lead to changes in the skill mix required with implications on public/private mix; • Workforce shortages exacerbated by the increased participation of women in the formal labor force, are likely to stimulate further inflows/outflows of LTC workers; • Stewardship and governance • Finally, long-term care delivery will have to be more patient-centred and adequately coordinated across care and social settings. • Fragmented financing results in nonaligned incentives and “schizophrenic” buying agent for LTC

8. Household Behavior and Public Policy Action Baeza and Packard, 2007

9. “Uncertainty and the Welfare Economics of Medical Care” • Uncertainty regarding disease and medical efficacy creates inefficient allocation and market failures;Does this apply to LTC? Is disability predictable? • Health sector prone to principal-agent problems;Would seem clearly applicable to LTC sector • The need for state intervention/non-market institutions. Would seem applicable to LTC sector

10. Main Findings - Financing • Spending on LTC substantial (next slide) • Severe failures in private LTC insurance (moral hazard and adverse selection) • High transaction costs of regulation • Rationale for Risk Pooling?

11. LTC Costs can be Impoverishing • The average costs in the United States for LTC (in 2008) are: • $187/day for asemi-private room in a nursing home • $209/day for a private room in a nursing home • $3,008/month for care in an Assisted Living Facility (for a one-bedroom unit) • $29/hour for a Home Health Aide • $18/hour for a Homemaker services • $59/day for care in an Adult Day Health Care Center

12. Main Findings: Provision/Organization of LTC services • LTC “in its own right” is an emerging policy area • Many OECD countries have embarked on developing policies but “best-practice” models are lacking • Major challenge is to develop financing models given the institutional context and expected trends in disability and in the availability of informal care • Most countries rely on taxation for public financing of LTC, except i.e. GER; JAP; NED • Financial sustainability is under scrutiny due to upward pressures on workforce needs/quality/wages • Quality and responsiveness is poorly understood and measured

13. Contributions, taxes Subsidies to households Money flows Patient reimbursement Payments to providers Government Insurance Taxpayers Patients/ Providers Providers Service flows In developing LTC policies market and government failures must be jointly considered

14. A possible classification for LTC services and interventions • capacity of producers to freely enter markets (sunk costs, monopoly power, economies of scale and scope etc.) • capacity of buyers to obtain information on products (information asymmetry, data availability, quality etc.)

15. Classifying LTC services

16. Make or buy?Is regulating and contracting enough?

17. Is shifting the grid feasible and desireable for LTC services?

18. But once LTC becomes truly “generic” core functions and performance measures apply

19. ConclusionQuestions Posed: Answers? • Should the State finance LTC for all citizens, or is a safety net system that only protects those unable to pay for LTC adequate? Better to think of universal entitlements based on large risk pools • What are the equity and efficiency tradeoffs of different models of financing LTC? Larger and consolidated risk pools are more equitable and efficient • Does a system of public and private contributions provide the best model for fair financing? It may be the most fiscally sustainable way to go • What is the optimal public/private provision mix in LTC services? There is no one size fits all model. But very low private sector participation may be sending a signal as well

20. THANK YOU