Is Care Affordable for Older People?

Glossary

Concepts related to care needs

Long-term care

This report uses the definition of long-term care as described in the council recommendation on access to affordable high-quality long-term care (European Commission, 2022[1]). It is understood as “a range of services and assistance for people who, as a result of mental and/or physical frailty and/or disability over an extended period of time, depend on help with daily living activities and/or need some permanent nursing care. The daily living activities for which help is needed may be the self-care activities that a person must perform every day (Activities of Daily Living, ADL, such as bathing, dressing, eating, getting in and out of bed or a chair, moving around, using the toilet, and controlling bladder and bowel functions) or may be related to independent living (Instrumental Activities of Daily Living, IADL, such as preparing meals, managing money, shopping for groceries or personal items, performing light or heavy housework, and using a telephone).”

For the purpose of this report, long-term care encompasses the services that people require to meet the two types of needs mentioned above: activities of daily living (ADLs) and instrumental activities of daily living (IADLs) as well as the additional social activities such as meeting with friends or going to the movies, prevalent for at least six months. In the System of Health Accounts manual, long-term care consists of a range of medical/nursing care services, personal care services and assistance services that are consumed with the primary goal of alleviating pain and suffering or reducing or managing the deterioration in health status in patients with a degree of long-term dependency. Medical/nursing care services are excluded from this report.

Instrumental activities of daily living

Instrumental activities of daily living, or IADLs, are tasks that are not part of someone’s personal care but are necessary for someone to be able to live independently in the community. They include shopping, housekeeping, and preparing food. IADL need is often measured using the Lawton Instrumental Activities of Daily Living Scale, which gives a score between zero (totally dependent) and 8 (totally independent).This type of services is also described in the System of Health Accounts (OECD/Eurostat/WHO, 2017[2]):

Assistance services relate to care that enables a person to live independently in a house or apartment. They help with tasks of household management (i.e. instrumental activities of daily living, IADL), such as shopping, laundry, vacuuming, cooking, and performing housework, managing finances, using the telephone, etc. These services are typically provided under home help services, assisted living arrangements, etc.

Social activities

In addition to ADL and IADL needs, some people are not able to maintain social activity independently (e.g. meeting with friends, going to the movies, etc.). This can lead to social isolation, which can lead to depression and deterioration in physical health. Some people therefore need support to help them maintain some level of social activity if they are to live independently in the community. This type of services is described in the System of Health Accounts (OECD/Eurostat/WHO, 2017[2]):

Other social care services involve community activities and occupational support given on a continuing or recurrent basis to individuals, such as activities whose primary purpose is social and leisure.

Concepts related to economic variables

Household

A household is either an individual person or a group of persons who live together under the same housing arrangement and who combine to provide themselves with food and possibly with other essentials of living. All persons living in a country belong to one, and only one, household. A person’s place of usual residence is the basis for determining household membership.

Disposable income

Disposable income is sourced from different sources depending on the objective of the analysis. Disposable income for older people as a whole is sourced from the OECD Income Distribution Database. For analyses of public support, out-of-pocket costs and poverty risks at individual level, disposable income is sourced from responses in The Irish Longitudinal Study on Ageing (TILDA), for Ireland, and responses in the Survey of Health, Ageing and Retirement in Europe (SHARE) for all other EU Member States.

Disposable income in the OECD Income Distribution Database

The unit of observation of the OECD Income Distribution Database is the household, while the unit of analysis is the individual. Five main components of household disposable income are identified in the OECD questionnaire:

E: employee income, including wages and salaries, cash bonuses and gratuities, commissions and tips, directors’ fees, profit sharing bonuses and other forms of profit-related pay, shares offered as part of employee remuneration, free and subsidised goods and services from an employer, severance and termination pay. Sick pay paid by social security should also be included.

KI: capital and property income, including income from financial assets (net of expenses), income from non-financial assets (net of expenses) and royalties. Regular receipts from voluntary individual private pension plans and life insurance schemes should also be included in this income component. In line with the 2011 Canberra Handbook (UNECE, 2011[3]), capital gains should not be included in KI.

SEI: income from self-employment, including profits and losses from unincorporated enterprises, as well as goods produced for own consumption (net of the costs of inputs). The inclusion of this latter variable aims to adjust the OECD income concept to the realities of middle‑income countries (such as Brazil, South Africa, and others), where subsistence agriculture represents a significant income source for people at the bottom of the distribution. Countries that do not collect information on this income item should indicate so in the metadata sheet of the OECD questionnaire.

TRR: current transfers received, including transfers from social security (including accident and disability benefits, old-age cash benefits, unemployment benefits, maternity allowances, child and/or family allowances, all income‑tested and means-tested benefits that are part of social assistance, including quasi-cash transfers given for a specific purpose such as food stamps); transfers from employment related social insurance; as well as cash transfers from both non-profit institutions and other households.

TRP: current transfers paid, including direct taxes on income and wealth, social security contributions paid by households, contributions to employment-related social insurance, current transfers paid to both other households and non-profit institutions. Taxes on realised capital gains should be excluded from wealth taxes when possible.

The income components defined above can be aggregated into various concepts of equivalised household income: individual primary, market, gross and disposable income per equivalent household member. Equivalised disposable income (DI), for each member of a household, can be expressed as the sum of the five main components of household disposable income listed above. Disposable income deducts from gross income the value of taxes on income and wealth paid and of contributions paid by households to public social security schemes.

Disposable income in SHARE and TILDA

In this report, due to limitations on the availability of income variables in the harmonised version of SHARE developed by the Gateway to Global Aging Data, the variable HwITTOT are used. HwITTOT is a variable that includes the sum of all income components after taxes and contributions at the couple‑level economic unit, which comprises the respondent and the spouse, if any. This income variable undergoes adjustments to account for high response rates for zero incomes and the well-established underreporting of incomes in survey (Neri and Zizza, 2010[4]).

Household income in TILDA is based on a loop (ISSDA, 2019[5]): the respondent is asked to estimate the income of each household member aged 16 years or more, including himself/herself. Total household income is then derived as the sum of the income of each household member aged 16 years or older. Disposable income is then derived after taxes and deductions.

Equivalence scale

The sum of all income components for each analysis unit undergo adjustment based on a scaling factor: the square root of 1 for single respondents and 2 for couples. To illustrate, in a household where both the respondent and their spouse respond to the financial questionnaire, the total income is divided by two and then attributed to each of the two members of the household.1 The equivalence elasticity serves to quantify the scale economies achievable by households. Ideally, this analytical approach should encompass both total household income and the overall number of household members. Regrettably, the latest harmonised questionnaire lacks data on total household income after taxes and contributions; therefore, equivalised scaling is computed exclusively at the level of couples and respondents.

Wealth (net wealth)

The unit of analysis to be used when compiling estimates on wealth is the household. It should be noted that the unit of analysis used for this data collection differs from the one used by the OECD for its collection on the distribution of household income, which refers to the individual. The concept of “wealth” generally refers to economic resources in the form of assets and liabilities.2 For micro statistics on household wealth, confining the concept of wealth to assets and liabilities in a narrow economic sense – comprising items that have an economic value and are subject to ownership rights – is generally considered to be the most relevant and useful approach for most purposes as well as the most practical. This concept of wealth is often summarised in a net measure representing assets less liabilities. Wealth, or net worth, is the value of all the assets owned by a household less the value of all its liabilities at a particular point in time, and so it may be positive or negative.

An asset is a store of value representing a benefit, or series of benefits, accruing to the economic owner by holding or using the entity over a period of time; while a liability is established when one unit (the debtor) is obliged, under specific circumstances, to provide a payment or series of payments to another unit (the creditor). Common types of financial assets held by households are currency and deposits, bonds, and other types of debt securities, listed and unlisted shares, equity in family trusts and partnerships, investment fund shares and units, and pension entitlements. Common types of liabilities are loans and credit card debt. Examples of non-financial assets held by households are their homes, land, other property, and valuables.

In the SHARE and TILDA, household net wealth (or net worth) is derived from responses to multiple asset categories. The SHARE also provides data on household real assets and net financial assets.

Liquid financial assets

The concept of liquid financial assets (i.e. cash, quoted shares, mutual funds, and bonds net of liabilities of own unincorporated enterprises) is the main measure used to capture asset-based poverty (see below), as this represents the assets that are relatively accessible by households if needed urgently. When net wealth is used, measures of asset-based poverty are around 2/3 lower than those based on the liquid financial wealth concept.3

Poverty (income)

Poverty is defined using relative thresholds. The relative poverty threshold is expressed as a given percentage of the median disposable income, expressed in nominal terms (current prices). Therefore, this threshold changes over time, as the median income changes over time. Two relative poverty thresholds are typically used: the first one is set at 50% of the median equivalised disposable income of the entire population, the second one is set at 60% of that income. This last one is the at-risk-of-poverty threshold used by the European Commission. This indicator does not measure wealth or poverty, but low income in comparison to other residents in that country, which does not necessarily imply a low standard of living. The relative income poverty threshold used in this report is set at 50% of the population-wide median disposable income, sourced from the OECD Income Distribution Database (see above).

Poverty (asset-based)

Poverty in OECD countries has traditionally been measured using household income. But what happens when a negative income shock occurs, perhaps due to unemployment, family breakdown or illness? What about unexpected expenses the household needs to deal with? Such events highlight the importance of considering not only whether people have low income now, but also whether their limited financial assets mean they are economically vulnerable and could experience significant economic difficulties if their income dropped suddenly.

There is no standard definition of asset-based poverty. The main measure used in this report – and other work by the OECD – is whether an individual belongs to a household with liquid financial wealth insufficient to support them at the level of the income poverty line for at least three months. Those asset-poor individuals who are not poor in terms of their income are described here as being economically vulnerable. By construction, this measure provides only a partial view of economic vulnerability, as it does not consider social transfers (e.g. unemployment benefits) that people may receive in the event of some types of shocks depending on their individual circumstances.

Different reference periods can be used, although most of the literature focuses on three, 6 and 12 months. The relative ranking of countries is insensitive to the reference period used (Spearman’s Rho is 0.98 for 3‑ and 6‑month measures, and 0.95 for 3‑ and 12‑month measures). The reference period used in this report is three months.

Poverty (income and asset-based)

Household wealth data is used to consider how long an individual can maintain a minimum way of life by drawing on their accumulated wealth, should their income suddenly fall because of a sudden adverse shock (e.g. loss of employment, disability, family disruption). Taking wealth into consideration makes it possible to distinguish, within the income poor, those who have sufficient wealth to keep them above the poverty line for a given period of months (the “income poor only”) from those who lack this buffer (the “asset and income poor”). Both groups experience low income, but the latter is clearly worse‑off than the former. A third, and potentially much larger, group comprises the “asset poor only”, i.e. those individuals who currently have sufficient income to achieve the minimally acceptable standard of living but do not have enough assets to protect them from a sudden drop of their income. This group is classified here as being “economically vulnerable”.

Other concepts

Jurisdiction

Territorial unit within which some government functions and powers can be exercised. In the context of this report, the government functions and powers of interest relate to social protection for long-term care in old age. Depending on the EU Member State, these functions and powers may be exercised by the central government or by administrative regions, i.e. subnational governments (e.g. in states, provinces and municipalities, to name a few). When functions and powers are exercised by the central government, then the jurisdiction is the national territory as a whole. When the administrative regions exercise functions and power, then the jurisdiction normally covers the total area inside the borders of the administrative region. In summary, the term jurisdiction is used here to signify the territorial unit within which government functions and powers related to social protection for long-term care in old age are exercised.

References

[8] Balestra, C. and R. Tonkin (2018), “Inequalities in household wealth across OECD countries: Evidence from the OECD Wealth Distribution Database”, OECD Statistics Working Papers, No. 2018/01, OECD Publishing, Paris, https://doi.org/10.1787/7e1bf673-en.

[1] European Commission (2022), Proposal for a COUNCIL RECOMMENDATION on access to affordable high-quality long-term care, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2022%3A441%3AFIN (accessed on 27 October 2023).

[5] ISSDA (2019), TILDA Derived Variables Codebook: Wave 3, Irish Social Science Data Archive, https://www.ucd.ie/issda/t4media/0053-04_TILDA_Wave3_Derived_Variables_Codebook_v3.4.pdf.

[4] Neri, A. and R. Zizza (2010), “Income Reporting Behaviour in Sample Surveys”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.1792512.

[6] OECD (2013), “Framework for integrated analysis”, in OECD Framework for Statistics on the Distribution of Household Income, Consumption and Wealth, OECD Publishing, Paris, https://doi.org/10.1787/9789264194830-11-en.

[7] OECD (n.d.), OECD Wealth Distribution Database: Main concepts, https://www.oecd.org/content/dam/oecd/en/data/datasets/income-and-wealth-distribution-databases/wdd-main-concepts.pdf.

[2] OECD/Eurostat/WHO (2017), A System of Health Accounts 2011: Revised edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264270985-en.

[3] UNECE (2011), Canberra Group Handbook on Household Income Statistics, Second Edition, http://www.unece.org/fileadmin/DAM/stats/publications/Canberra_Group_Handbook_2nd_edition.pdf (accessed on 17 June 2019).

Notes

← 1.  See OECD (2013[6]) for more detail.

← 2.  See OECD (n.d.[7]) for more detail.

← 3.  See Balestra and Tonkin (2018[8]) for more detail.