This introductory chapter provides an overview of the entire publication, drawing on the analyses carried out in the four subsequent chapters. It documents the high prevalence of long-term care needs across OECD countries and highlights further expected increases over the next decades. The chapter flags that while public support for long-term care tends to be higher for the most vulnerable, gaps in generosity remain. In a number of countries, users face high out-of-pocket costs (especially users with severe needs) and public benefits and services do not decrease poverty risks sufficiently. The chapter concludes with policy options to improve affordability for users, while discussing options to address possible concerns about the sustainability of long-term care funding.
Is Care Affordable for Older People?
Abstract
Population ageing in the OECD is occurring at a rapid pace, primarily driven by advancements in life expectancy and a decline in fertility rates. As individuals age, their physical and mental health tends to decline, leading to potential challenges in performing routine tasks, including getting dressed, shopping, or even taking a walk. Consequently, older people will require a range of personal care and assistance services, commonly referred to as long-term care or LTC (a definition is given in Box 1.1). Increasing demand for LTC in old age further exacerbates the existing structural challenges to the well-being of older people across countries, as population ageing is coinciding with shortages of formal and family caregivers (OECD, 2023[1]; OECD, 2020[2]; Rocard and Llena-Nozal, 2022[3]) and rising expectations on the availability, affordability, and quality of LTC.
Publicly funded formal care is usually available across OECD countries but differs widely in terms of its scope and reach. Across OECD countries, an average of 11.5% of people aged 65 and older received LTC in 2021 (OECD, 2023[4]) and more than 20% of people in this age group received LTC services in four OECD countries (Lithuania, Israel, Switzerland and Germany). Similarly, across OECD countries 1.8% of gross domestic product (GDP) was allocated to LTC on average, ranging from more than 3% of GDP in the Netherlands and the Nordic countries to around 0.5% of GDP or less in Greece, Poland and Latvia. This variation partly mirrors differences in the population structure, but mostly reflects the stage of development of formal LTC systems, as opposed to more informal arrangements based mainly on care provided by unpaid family members.
In many countries, an important share of care is indeed provided by so-called informal carers who can be spouses, children, friends, and neighbours. Families and friends who provide support to dependent older individuals may suffer physical and mental stress and are more likely to drop out of the labour market or reduce working hours (Colombo et al., 2011[5]). As such, countries that rely heavily on informal carers may face sustainability challenges in the future as the supply of informal carers is likely to decline. Providing care informally is becoming more challenging as older people live longer with compounding chronic conditions, households are becoming smaller on average, relatives live far away and female labour market participation is increasing. All these developments are likely to further limit the pool of potential informal carers available to older people.
Designing effective publicly funded formal social protection (in cash or in-kind) – or public support for simplicity – for LTC is not only about availability and coverage but also about the generosity of the system. If the amount provided through benefits and services is insufficient, there is a risk that people face high out-of-pocket costs, that needs will go unmet, or that the pressure on the general health system increases in terms of higher hospital admission rates or longer stays in hospital beds for people who cannot afford to pay for LTC (Costa-Font, Jimenez-Martin and Vilaplana, 2018[6]; ESRI et al., 2019[7]). Across the OECD, all countries have user cost-sharing for LTC, although the extent varies significantly across the OECD. In several countries, limited public formal support and tight eligibility criteria pose challenges to the affordability of LTC (Oliveira Hashiguchi and Llena-Nozal, 2020[8]).
The purpose of this report is to provide cross-country comparable information to assess public support for LTC in old age in OECD countries. The report measures the generosity and effectiveness of public LTC systems for a number of scenarios of severity of LTC needs, and income and wealth levels. The analyses focus on the extent to which public support is providing effective protection against the total costs of LTC across the older population, and especially for the least well off. This chapter specifically summarises the results on the generosity and effectiveness discussed in the remaining chapters and discusses options for reform to improve affordability and maintain the sustainability of funding. This includes assessing options to raise additional funds in view of growing demand, but also how countries can improve targeting or improve the efficiency of LTC.
Demand for long-term care (LTC) is high and will continue to grow. Close to one in four older persons across the OECD have LTC needs, that is, they need help with their daily activities. The demand for LTC is projected to increase by 30% by 2050. Older people with LTC needs are concentrated among the most vulnerable and will likely need more public support in the future: They are more likely to be 80+ years old, live in single households, and have lower incomes. There is also an important gender dimension as women are more likely to have needs for longer periods.
Without public support, the total cost of LTC for an individual is high and unaffordable for most people. The cost can represent between one and up to almost seven times an older person’s median income. Even for as little as 6.5 hours of home care per week for people with low needs, the total costs would represent more than two‑thirds of the disposable income of an older person with a low income. When older people develop more severe LTC needs even those with high incomes (at the 80th percentile of the income distribution) could not cover the costs anymore by relying on their income alone.
Significant gaps in public support remain in many countries. Out-of-pocket payments are large for the most vulnerable older people. Out-of-pocket costs, that is the cost of care left to pay after receiving public benefits or services, represent more than 40% of median income for people with moderate needs and more than 70% for those with severe needs on average across the OECD. Older people with moderate needs on low incomes also face high out-of-pocket costs in eight countries.
Public support reduces the poverty risks associated with LTC costs but not sufficiently. After receiving public support, the risk of poverty for older people with LTC needs is still significantly higher than for those without needs. Poverty risks are reduced by 27 percentage points but remain 33 percentage points higher than for older people without LTC needs. There is great heterogeneity across the OECD: in five countries, the share of people with poverty risks decreases by more than 50 percentage points while in eight countries the decrease is less than 10 percentage points. Poverty reduction tends to be greater in countries that also spend more on LTC, have in-kind benefits and income‑testing.
Countries face challenges to ensure the sustainability of their LTC systems. These challenges are particularly severe in countries that want to improve the affordability for older people but face rapid population ageing at the same time. When considering the growing number of older people needing care and the increasing pressure to expand access to services, current expenditures across the OECD are projected to increase by nearly 2.5 times by 2050. If, in addition, countries improved the generosity of the system to ease people’s high out-of-pocket costs, LTC expenditures would increase by more than 4 times by 2050.
Public policies can help steer LTC systems towards a generous and sustainable future. Countries can rely on three non-mutually exclusive policy options to ensure better and more sustainable social protection for LTC. Firstly, countries that need to look for additional resources could consider more broad-based funding sources that are less reliant on labour income only; ensure intergenerational fairness; and look for innovative funding options also from the private sector. Secondly, countries can target better their existing LTC funds, e.g. by making cost-sharing across the income distribution more progressive and by targeting better those with more severe needs. While a number of countries might consider wealth-testing, thresholds used to target public support should be designed to not miss the most vulnerable as they often have savings well below median wealth. Finally, countries can look into policy options that promote efficiency and help contain costs by investing in healthy ageing, redesigning their pricing systems, promoting a more efficient use of human resources, and developing innovative approaches to LTC provision more broadly.
1.1.1. An estimated one in four older people have LTC needs
Among OECD countries, almost one in four older persons (those aged 65 and above) have LTC needs with notable differences across countries and by gender (see Box 1.1 for the definition of needs). In general, women tend to age in worse health and have more needs. Their prevalence of LTC needs is 27% while it is 20% for men (see Figure 1.1). In all countries but Korea, Czechia and Poland, there is a higher prevalence of needs for women; in countries like Japan, the Slovak Republic and Israel prevalence for women is more than 10 percentage points higher than for men. Needs also vary widely across the OECD: close to 40% of women have LTC needs in Portugal, Hungary, Japan and Lithuania, while less than 14% have needs in Korea and Ireland. Certain socio-demographic groups have a higher chance of experiencing LTC needs. Low-income earners, people living in single households, and the oldest age groups (80 years and older) are more likely to have LTC needs (see Chapter 2).
Note: Estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). The figure includes an unweighted OECD average.
Source: OECD analysis based on responses to surveys listed in Annex A.
The demand for LTC is set to increase significantly in the coming decades. By 2050, the number of individuals requiring such care is expected to rise by close to 30% in the OECD, driven primarily by a growing proportion of older adults (see Figure 1.2). This translates to an increase from 42.8 to 54.7 million individuals needing LTC services in 2050. These numbers show a similar trend as other estimates including from the European Joint Research Centre that projects an increase in the number of people aged 50+ with severe LTC needs by approximately 21% until 2070 (Belmonte et al., 2023[9]). Estimates for European countries, the United States and Israel suggest demand for LTC will increase, with the share of a country’s population with at least two ADLs or IADLs growing by 47% by 2040 (Kotschy and Bloom, 2022[10]). Healthy ageing can partially offset the growth in severe LTC needs, forecasted to reduce the growth by 64% by 2050. In contrast, without improvements in healthy ageing and with prolonged life expectancies, the projected increase in people with severe LTC needs could escalate to 157%.
Sum of projected population across 27 OECD and 2 non-OECD countries. Solid line represents point estimates, while dashed lines represent the upper and lower limit of the forecast
Note: The projection of the number of older people with LTC needs (average of two matching methods X and Y, see Annex) is obtained followed the methodology by Oliveira & Martins (2013[11]). The share of people with low, moderate, and severe needs is regressed on life expectancy at birth, public health spending and age group dummies. The estimates are then used to create a projection for 2023, 2030, 2040 and 2050. Lower and upper dashed lines define a 90% forecast confidence interval.
Source: OECD analysis based on responses to surveys listed in Annex A, OECD Population projections database, UN World Population Prospects, and Global Burden of Disease Collaborative Network. Global Expected Health Spending 2020‑50, Institute for Health Metrics and Evaluation (IHME).
Long-term care (LTC) services help people live as independently and safely as possible when they can no longer perform everyday activities on their own. The focus is on the services that people require to meet three types of needs. First, ADLs, or activities of daily living, are a set of personal care tasks, such as bathing, dressing, and using the toilet. Second, IADLs, or instrumental activities of daily living, are tasks necessary for someone to be able to live independently in the community. They include shopping, housekeeping, and preparing food. Thirdly, in addition to ADL and IADL, 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.
As there is no single internationally accepted and standardised definition of what constitutes LTC needs, it is not possible to make meaningful comparisons across countries and subnational areas using administrative data on LTC recipients and out-of-pocket spending, as differences in eligibility, scope and depth will all be confounded. As such, a set of eight typical cases of LTC needs were developed to describe an older person in terms of the types and severity of LTC needs, and the professional services they would require. These typical cases are based on number of hours of need for help with ADLs, IADLs, and social activities, and span different levels of care severity (low, moderate, and severe) and different ways in which these needs can be met (professional home care, informal care, and institutional care). Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. Information was collected from countries on what would be the total costs of meeting the needs described in the typical cases, available LTC benefits and schemes, and rules that determine the level of support depending on the older person’s income and wealth. Low income refers to the upper boundary of the 20th percentile, and high income to the upper boundary of the 80th percentile.
For more information on the methodology refer to Annex A and the working paper written by Cravo Oliveira Hashiguchi & Llena-Nozal (2020[12]).
1.1.2. Older people’s care costs can be as high as seven times the median income
The costs of LTC that older people would face if there were no public social protection would constitute a substantial financial challenge, often consuming a sizable portion of their disposable income. Across the OECD countries, the total costs of LTC for older people range from one to almost seven times the median disposable incomes for people in old age across countries (see Chapter 3). Even for an individual with low needs of only 6.5 care hours per week, the total costs of care would represent two‑thirds of the income of a person with low income (see Figure 1.3). An individual with moderate needs (22.5h per week), earning a median income would already face costs that are nearly 1.5 times their income. Finally, an individual with severe needs (41.25h per week) could not afford care costs from their income alone even if earning a high income. Without social protection systems for LTC, the majority of older people would not be able to afford LTC unless they have savings to draw on.
As a share of median income, in different settings and for different levels of needs, unweighted average across 30 OECD and 2 non-OECD countries and subnational areas
Note: Bars show unweighted averages for 30 OECD and 2 EU non-OECD countries and subnational areas (see Annex A). Low income refers to the upper boundary of the 20th percentile, and high income to the upper boundary of the 80th percentile of the income distribution among older people. Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. Detailed descriptions of care recipients’ needs are available in Annex A. The costs of institutional care include the provision of food and accommodation, so are overestimated relative to home care. Median income refers to the country disposable median income of older people.
Source: OECD analyses based on the Long-Term Care Social Protection questionnaire, the OECD Income Distribution Database, and the OECD Wealth Distribution Database.
1.2.1. Despite public support, the out-of-pocket costs of LTC are large
All countries provide some public support for LTC, but its generosity varies widely across countries. On average, public systems in the OECD cover 62% of the total costs of LTC services for people with moderate needs – requiring 22.5 hours of care per week – receiving care at home. The degree of public support is above 90% of total LTC costs in ten countries and below 50% in another ten countries (see Chapter 3). In Northern Europe, Canada, Luxembourg, Malta and Israel, public systems cover almost the full costs of home care. In contrast, in Estonia, Greece, the United States (California and Illinois), Czechia and Croatia, less than 10% of home care costs are covered by public systems for an individual with moderate needs. On average, public social protection systems across the OECD provide greater support for older people with more severe LTC needs and lower incomes, and less generous support for those with median wealth compared with individuals without wealth.
In spite of targeting support to the most vulnerable parts of the population, out-of-pocket costs remain large in many countries for those who need it most, that is, those with severe needs and low income. Out-of-pocket costs (the share of the total LTC costs that is left for older people to pay, after receiving public support) are high when compared to disposable incomes. In ten countries, an older person with moderate needs would have to devote more than half of their income to pay for receiving care at home, leaving less than half of their income to cover basic living expenses (see Figure 1.4). In 16 countries, out-of-pocket costs for individuals with severe needs at home represent more than half of the median income of an older person and in seven countries the costs are higher than an older person’s median income itself. For an individual with severe needs receiving care in an institution, the out-of-pocket costs will be above the median income in six countries. Older people with low incomes also face high out-of-pocket costs.
As a share of the median income, after receiving public support, for individuals with median income and zero wealth
Note: Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. Detailed descriptions of care recipients’ needs are available in Annex A. The estimates assume older people with LTC needs would seek formal home care. Estimates for Czechia are an outlier – cost of home care is 82%, 276% and 482% for low, moderate, and severe needs respectively – and are removed from the figure. Median income refers to the country disposable median income of older people.
Source: OECD analyses based on the Long-Term Care Social Protection questionnaire, the OECD Income Distribution Database, and the OECD Wealth Distribution Database.
1.2.2. Because of high out-of-pocket costs, many people may need to rely on their wealth to pay for care
In the majority of countries and subnational regions covered in this report, at least 50% of the population may have to rely on their wealth to pay for LTC even after receiving public support (see Figure 1.5). In 17 countries, individuals in at least the lowest five income deciles will have to use their wealth and in eight countries, all individuals will rely on their wealth except for those in the highest decile of the income distribution. Only in four countries (Iceland, Denmark, Luxembourg and Finland) individuals would not need to rely on their wealth to pay for LTC costs independent of their income.
After receiving public support, for individuals with median wealth, across the income distribution, assuming covering at least basic cost of living
Note: Estimates computed by income decile using the assumption that average duration of low needs is 6.1 years, moderate needs is 1.25 years, and severe needs 1.25 years. The estimates assume older people with LTC needs would seek formal home care. Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. Detailed descriptions of care recipients’ needs are available in Annex A. The basic cost of living representing food and other expenses is equal to the poverty level (50% of a country’s median income). Median income refers to the country’s disposable median income of older people.
Source: OECD analyses based on the Long-Term Care Social Protection questionnaire, the OECD Income Distribution Database, and the OECD Wealth Distribution Database.
1.3.1. Public support reduces poverty risks associated with out-of-pocket costs for LTC only to some extent
Benefits and services help reducing poverty risks significantly, by an average of 27 percentage points in the OECD. If it were not for public social protection for LTC, the majority of older people in the OECD would not be able to pay the out-of-pocket costs of care from their incomes alone without being at risk of poverty. In 13 countries, the share of the population at risk of poverty would be above 80% and only in three countries less than 50% of the individuals with LTC needs would be at risk of poverty (see Figure 1.6). The impact of benefits and services on reducing the poverty risks associated with LTC varies between countries. When using home care services this impact is largest in Denmark, the Netherlands and Finland where public support decreases poverty risks by at least 70 percentage points (see Figure 1.8). In the majority of countries, the share of people at risk of poverty is reduced by between 15 and 30 percentage points after receiving benefits and services. In a few countries the reduction thanks to benefits and services is below 5 percentage points (Croatia, Czechia, Lithuania, Spain and the United States).
Yet, social protection measures in most countries fail to reduce the risk of poverty for older people with LTC needs to the level of baseline poverty rates observed in the general older population. The share of individuals at risk of poverty among older people with LTC needs is 33 percentage points higher than in the total older population. In all but three countries public support is not sufficient to reduce poverty risks to the baseline poverty rate. They remain between 20 percentage points to 50 percentage points higher in most countries.
Compared to the baseline poverty rate for all older people
Note: Estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). Estimates assume all older people with LTC needs would seek formal home care. For countries with subnational models, these are applied to national-level survey data to produce the estimates shown. The poverty level is equal to 50% of country median income.
Source: OECD analysis based on the Long-Term Care Social Protection questionnaire and responses to surveys listed in Annex A.
1.3.2. Poverty reduction is greater in countries that spend more, have less stringent means-testing and in-kind rather than cash benefits
More LTC spending is associated with greater poverty reduction
Public social protection is efficient when gains in well-being and reductions in poverty and economic vulnerability are achieved at minimum cost to the public purse. One way to analyse efficiency is to compare the costs of public social protection (the inputs) with poverty reductions (the effects). In the case of LTC this could be, for example, comparing poverty reductions due to public benefits with public LTC spending, providing a proxy measure of efficiency.
In countries where public LTC spending is higher, the impact of social protection is greater in reducing the poverty risks associated with LTC (see Figure 1.7). This impact is measured as the difference between the poverty risk with vs. the risk without social protection. There is however significant variation in public spending for the same impact on poverty risk reduction: for instance, Denmark and Germany spend significantly less than the Netherlands but manage to limit poverty to a similar degree. At the other end of the scale, England spends more than e.g. Poland but with a similar impact on poverty reduction.
Public spending on LTC as a share of GDP and percentage point differences between poverty rate among the older people with moderated needs using home care before and after receipt of benefits
Note: Poverty risk estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). Estimates assume all older people with LTC needs would seek formal home care. For countries with subnational models, these are applied to national-level survey data to produce the estimates shown. Moderate needs correspond to 22.5 hours of care per week, respectively. The poverty level is equal to 50% of country median income.
Source: OECD analysis based on the Long-Term Care Social Protection questionnaire, OECD Health Expenditure database and responses to surveys listed in Annex A.
Countries with less stringent means-testing and in-kind systems fare better in poverty reduction
Public social protection systems employ diverse approaches to organising their LTC benefits. One of the most important decisions countries have to take is whether they want to apply any kind of means-testing, use a universal approach, or find a balance to design some kind of targeted universalism. As there are advantages to both options, many countries choose blending different forms of means-testing with non-means-tested benefits. For home care, countries can be divided in three groups: i) not using any means-testing, ii) using income testing only and iii) using both, income, and wealth testing (see Chapter 4).
Countries with income testing only are the most efficient ones in reducing the risk of poverty (see Table 1.1). They reduce poverty risks by an average of 33 percentage points with public support (the average across low, moderate, and severe needs), while countries without means-testing reduce poverty by 32 percentage points The smallest reduction in poverty is achieved in countries that test for income and wealth where the difference is only 16 percentage points on average. However, all three groups of countries are quite heterogenous.
Among older people with low, moderate, or severe needs, receiving care at home.
Note: Estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). Presented estimates are the unweighted average across 30 OECD countries and subnational models by means-testing type and level of needs. Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. The estimates assume all older people with LTC needs would seek formal home care.
Source: OECD analysis based on the Long-Term Care Social Protection questionnaire and responses to surveys listed in Annex A.
Countries that offer only in-kind benefits show lower risks of poverty associated with out-of-pocket costs of home care (see Table 1.2). On average, the reduction in poverty risk is of 40 percentage points for countries having only in-kind benefits. Countries combining the two types of benefits also protect a high share of people from poverty risks and achieve a reduction in poverty of 29 percentage points Countries with cash benefits alone protect older people with LTC needs only to a very limited extent from the added risk of poverty: the reduction in poverty risks is as low as 6 percentage points, on average.
Among older people with low, moderate, or severe needs, receiving care at home.
Note: Estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). Presented estimates are the unweighted average across 30 OECD countries and subnational models by form of public support and level of needs. Low, moderate, and severe needs correspond to 6.5, 22.5 and 41.25 hours of care per week, respectively. The estimates assume all older people with LTC needs would seek formal home care. The poverty level is equal to 50% of country median income.
Source: OECD analysis based on the Long-Term Care Social Protection questionnaire and responses to surveys listed in Annex A.
With ageing populations, countries will continue to face pressures on LTC spending. A societal debate is needed to balance solutions between financial sustainability and affordability for the older people with LTC needs. Countries have a range of options at their disposal that are not mutually exclusive: they can look for options to raise additional funds, they can look into targeting better and they can also look for solutions to spend better and contain costs.
1.4.1. Ageing and greater demand for care will lead to higher expenditures
The growing need for LTC has significant funding implications. Currently, LTC expenditure in the analysed OECD and non-OECD countries accounts for USD 0.39 trillion. This figure is projected to nearly double by 2050 (see Figure 1.8: Ageing scenario; see Table 1.3 for overview of different scenarios analysed in this report). This projection could well be an underestimation, as the availability of family carers is expected to decline, exacerbating the expected increase in LTC spending. Moreover, if countries aim to expand the availability of LTC, e.g. by increasing the coverage to ensure that it meets the growing demand due to ageing and that 60% of people with care needs receive benefits and services in the OECD would result in a 45% increase from the level of LTC expenditures in 2022 (High coverage scenario). To achieve such coverage by 2050, the average annual increase in total LTC spending would need to exceed 4% of the GDP and represents nearly 2.5 times the initial expenditures in 2022. In comparison, LTC projections from the Ageing Report for the EU countries project an increase in expenditures by 1.5 in 2070 due to ageing and expenditures would be twice as high if, in addition to ageing, there were improvements in coverage (European Commission, 2024[13]).
At the same time, there will be growing pressure on public systems to make care more affordable, which will have even greater implications for LTC expenditures. The OECD estimates the impact on public expenditures in a scenario where governments provide enough public support to fully eliminate the additional poverty risks caused by the private out-of-pocket payments for LTC (No copayment scenario). Results show that implementing the No copayment scenario would likely increase expenditures on average more than fourfold by 2050 compared to the Ageing scenario (see Figure 1.8: No copayment scenario).
Sum of all financial protection for LTC for older people who receive public social protection in trillions of 2022 USD
Note: Bars show the sum of the simulated LTC spending across 26 OECD and 2 EU non-OECD countries. Estimates are first calculated using adjusted survey weights separately for each matching method (X and Y) and then averaged to obtain the final estimates (see Annex A). Chapter 5 details the assumptions made for the simulation. For countries with subnational models, these are applied to national-level survey data to produce the estimates shown.
Source: OECD analyses based on the Long-Term Care Social Protection questionnaire, OECD Population Projection database, OECD Purchasing Power Parities and exchange rate database and responses to responses to surveys listed in Annex A.
1.4.2. Countries could seek additional sources of funding
There are equity and efficiency reasons for which a comprehensive public LTC system is desirable. Uncertainty about whether, when, and for how long an individual might need LTC services suggests that pooling the financial risk associated with LTC is a more efficient solution than relying solely on private out-of-pocket payments. Otherwise, the cost of LTC services and support can rapidly become unaffordable for the individual. The private sector provides only limited options for pooling the risk of high LTC costs (see Chapter 3).
To prepare for the increasing LTC costs in the future, this section discusses ways to increase funding for the long term that OECD countries have used to a certain extent and which include: 1) Tax-broadening measures, which means funding from sources other than labour income or incomes of the working-age population; 2) better pooling across generations, which implies redistributing the financial pressure between the young and older population cohorts to pay for LTC costs; 3) pre‑funding elements, which imply setting aside some funds to pay for future obligations; and 4) innovative funding approaches.
Across the OECD, taxes are the most common source of funding for LTC. It is used for example in Austria, the Scandinavian countries and Spain. The main advantage of tax-based funding for LTC systems are that taxes can be broad-based. However, there are sometimes concerns about fluctuations in funding, especially during an economic recession, as well as a lack of transparency in the allocation of funds. Funding can also come from a mix of social contributions and taxes and, in this case, countries typically levy money on a base broader than the labour incomes. For example, in France, funding stems mostly from social contributions and taxes that cover a base that goes well beyond labour income.1 Countries with a dedicated social insurance scheme for LTC are Germany, Japan, Korea, the Netherlands and Luxembourg, whereas parts of Belgium arrange coverage mostly within the health system.
Options for governments to fund growing needs include broadening of funding sources beyond payroll contributions and diversifying taxes. Funding through a rise in social security and payroll taxes would be a major challenge as in some countries taxpayers already feel overburdened. In the future, the pool of workers will decrease along with population ageing and further limit avenues for relying on taxable incomes among the working age population. Other forms of taxation outside of income taxes could be considered – for example, earmarking a fixed percentage of the value‑added tax (VAT) to build up reserve funds or a percentage of the tax revenue of other taxes, such as local property taxes (as is the case in France) would in practice increase the tax base of LTC funding. Certain countries have considered the (re)introduction of a wealth tax or increasing the tax levied on the highest incomes as alternative options to finance LTC but these options are likely to be controversial.
In a number of countries, the debate about raising taxes has led to considerations about introducing contributions for a public LTC insurance. Slovenia is an example of country that decided to introduce a dedicated LTC insurance to fund a new and more comprehensive system with the introduction of the new Long-term care Act in 2023. The advantages of a dedicated insurance scheme include more transparency in managing funds and a possibility to prefund care instead of creating debts for the future. Disadvantages of such a scheme include its reliance on employee contributions, which can have negative impacts on employment and growth, and issues with respect to equity and intergenerational fairness. Unless the scheme was extended to the unemployed and the self-employed, it would have a limited tax base, which raises issues regarding equity.
Another related option is to ensure a better pooling of funding across generations. To ensure that the burden is not falling only on those of working age, the Japanese LTC insurance relies on premiums which are different for the people aged 40‑64 and those aged 65 and over. Municipalities set the premiums every three years based on their projected expenditure. In Germany, the presence of children affects individuals’ level of contribution to the public LTC system. The general premium is 3.4% of the gross wage and is shared equally between employees and employers, while those without children pay a surcharge of 0.6 percentage points. The rationale for the additional premium is that childless individuals are expected to use more in-kind LTC services, which are set at a more generous level than cash benefits, which again are more used by people with children.
Another strategy that could be adopted to address the fiscal-sustainability gap is the introduction of pre‑funding, which essentially means building up wealth to ease future ageing-related cost pressures. Pre‑funding is more feasible in countries that finance their LTC expenditure from dedicated revenue sources. In Germany and Luxembourg, the public LTC insurance scheme is mandated to accumulate a small reserve. In Germany a share of 0.1 percentage points of the LTC insurance contributions is invested each year in the LTC provident fund. Over a period of 20 years, money will be saved up to contribute to the stabilisation of the contribution rate.
In addition, countries could facilitate innovative funding solutions such as the development of financial instruments to pay for LTC costs, especially for the board and lodging costs of LTC provided in institutions. Options include bonds or equity release schemes (as in Australia and Ireland), public measures to defer payments (as in the United States and the United Kingdom), and private sector products, such as combinations of life and LTC insurance policies. Some insurance providers offer LTC insurance policies as part of life insurance policies, for example in the United States, France, Canada and Australia. One possibility for private co-funding is group insurance, which typically takes place in the context of employment and has the advantage of encouraging early subscription into a private LTC insurance plan. Group coverage can provide a number of benefits to enrolees, such as the ability to negotiate better coverage solutions and lower premia. For the insurance providers, group insurance mitigates the risk of adverse selection with the potential benefit of reducing the overhead costs associated with underwriting tests. Countries where such options are prominent include France and the United States. So far, the development of such products remains limited due to minimal interest from providers and citizens, as well as complex regulatory challenges.
1.4.3. Countries could consider more targeted universalism
Targeting to those with high needs and fewer resources would become more important with growing financial pressures on LTC. Targeted universalism was previously discussed as a way to strike a balance between the adequacy of social protection and fiscal sustainability (Colombo et al., 2011[5]). Such a concept means that while some degree of universal entitlement for care costs is warranted, universality does not mean that there is no room for targeting benefits on the basis of care need and resources. Means-testing – making the level of public support depend on the care recipient’s income and wealth – is adopted to enable public social protection systems to use limited resources to maximise adequacy (anyone can access and afford the care they need), equity (the most vulnerable are adequately protected) and efficiency (a given level of results is achieved at the lowest cost to the public purse).
One option for countries is to support individuals exclusively with those services that are needed most, although this might have negative consequences in terms of adequacy for some countries. In the need to address sustainability challenges, countries could, for example, ensure that the costs of help with ADL are paid in full by the public social protection system while the costs of help with IADLs and social activities are charged in full to the care recipient. Previous OECD analysis (Cravo Oliveira Hashiguchi and Llena-Nozal, 2020[12]) concluded that such a policy might be appropriate in countries where the risk of poverty associated with LTC is currently high, as providing greater support for personal care (help with ADLs) leads to clear reductions in the risk of poverty. In other countries, adequate social protection for LTC should go well beyond support with ADLs and include help with IADLs and social activities, the costs of which can still push large shares of the old age population to relative income poverty.
Targeting resources better towards those with most severe needs and low income, without impoverishing those in the middle might be a policy worth considering in a number of OECD countries. Simulations for such policies are shown in Chapter 5 (Figure 5.3). The results show that designing public support in a more progressive way based on LTC needs results in lower spending in a number of countries without an increase in poverty. In other countries, poverty could even be reduced with small expenditure increases. Making cost-sharing more progressive along the income distribution can also be a promising avenue in some countries to avoid budget increases and limit poverty among care recipients. Improving targeting towards care recipients with lower income, while maintaining current maximum support and coverage can be beneficial in a number of OECD countries (Figure 5.4 in Chapter 5). In about one‑third of countries, such improved targeting results in lower spending on LTC and reduced poverty among care recipients or reduces spending without changing poverty rates. In another third or more, poverty among recipients would decrease significantly, but it would come with a high increase in spending, although lower than fully eliminating the out-of-pocket costs of LTC. When targeting support, it needs to be ensured that individuals just above the threshold(s) who do not receive support are not worse off than those just below the threshold receiving support.
Wealth-testing, which ties public support to an individual’s wealth, can effectively direct aid to those who most need it. However, it must be designed carefully to avoid discouraging savings and unfairly impacting those with limited wealth. Many older people in OECD countries own their primary residences, suggesting that wealth-testing or funding LTC through private properties could be feasible. To avoid forcing the immediate sale of homes, reverse mortgages – available in countries such as Canada, France, New Zealand, the United Kingdom, the United States and Germany – allow individuals to borrow against their home’s value without losing eligibility for public benefits. These mortgages can be obtained regardless of health status and can ensure the borrower’s debt never exceeds the property’s value (Bonnet, Juin and Laferrère, 2019[14]). While reverse mortgages are well-developed in the United States, in other countries they are often seen as last-resort options rather than integral parts of retirement or healthcare planning (Knaack, Miller and Stewart, 2020[15]). A potential policy option to encourage their use is for public administration to act as lenders (Roberto Martinez-Lacoba, 2020[16]).
1.4.4. Countries could seek efficiency gains to reduce pressure on LTC cost
Increases in LTC costs can be partially mitigated by healthy ageing. When longer life is lived in good health (Healthy ageing scenario), the increase in LTC expenditures by 2050 could be 13% lower than in the Higher coverage scenario (see Figure 1.8: Healthy ageing scenario). Encouraging preventive and rehabilitation services to delay the onset of LTC needs is an important strategy to promote healthy ageing and contain costs. The examples below (and more extensively in Chapter 5) present policies already used by countries to achieve this goal.
A number of OECD countries have well-developed preventive systems that can contribute to improving quality of life and have shown to be cost-efficient. Australia, Denmark, Latvia and Norway have introduced dedicated home visits schemes for older people. Home visits in Denmark, Finland, Norway and Sweden were found to be cost-effective (Kronborg et al., 2006[17]; Liimatta et al., 2019[18]; Sahlen et al., 2008[19]). For instance, the introduction of the “Preventive Home Visits” scheme in Norway was found to reduce admissions to LTC facilities by 7%, hospital admissions among those aged 80 and above by the same rate, the average number of hospital days by 11%, and mortality of those aged 80 and above by 4% (Bannenberg et al., 2021[20]). In addition, New Zealand, Australia, Japan, the United States, and some European countries have introduced reablement or rehabilitation services for older people which also have potential to be cost-effective (Chen et al., 2022[21]). New models of care that are more people centred are also promoting enhancing autonomy for older people and have proved to improve on a number of outcomes. Such models of care focus on innovative living arrangements which include small-scale living, the green house model, shared housing arrangements, green care farms, dementia villages, group homes, intergenerational living (Brouwers et al., 2023[22]).
In addition to reducing LTC needs through healthy ageing, productivity gains could also help offset some of the costs. This could be undertaken through price controls or productivity improvements in the workforce which could reduce costs by handling repetitive tasks more efficiently. If productivity gains are half of those in the total economy, the increase in LTC expenditures could be 13% lower than in the High coverage scenario (see Figure 1.8, Productivity growth scenario).
Price controls for LTC services as well as setting targets for expenditures might be useful tools for sustainability. Certain countries such as the Netherlands rely on defined or maximum prices for services in each care setting. The 31 Dutch regional purchasing offices are in charge of contracting provision with providers, within the budget constraint, and respect the maximum prices set by the Dutch Health Care Authority (Nza) (Milstein, Mueller and Lorenzoni, 2021[23]). Maximum prices are based on empirical research using a survey that covered about half of the providers delivering care financed by social long-term care insurance in 2017 (Kelders and de Vaan, 2018[24]; Bakx, Schut and Wouterse, 2021[25]). In addition, the national government sets a macro budget for LTC using forecasting accounting for changes in wages, prices, demographics, and policies. Regional purchasing offices must adjust prices and/or volume of the contracted care to fit the regional budget restrictions (OECD/WHO, 2021[26]). An alternative is to use a point system to set prices and to control spending such as in Germany and France. Each service has a number of points, which have a base value. The points and the base values can be set at the national or subnational level, but providers can set up contracts with the public bodies. The pricing system also depends on the setting – home care, day care and residential care.
Improving LTC worker productivity is another possibility to help contain costs as their salaries are often one large component of the overall expenditures. There are two potential ways to attain this: one is by freeing professionals’ time from automatable tasks, allowing them to focus on the activities that are most important for the people in need of care. Importantly, this may also help to promote better quality of care and reducing adverse events, thereby reducing over costs to the system. Innovation is slowly entering LTC in some countries, but evidence on its cost-effectiveness is scarce so far. Some studies point to an increase in labour productivity in the United Kingdom and Japan (OECD, 2023[1]) (see Chapter 5). New technologies can help improve work processes and reduce LTC workload – for instance, by helping to share care plans and reducing the amount of repetitive and physically demanding tasks. Improving the workforce skill mix and promoting task delegation could also be a way to promote value for money. In home‑based settings, the delegation of medication administration (pills, eyes-drops etc.) from nurses to personal care workers can lead to better efficacy when, for instance, it reduces unnecessary travel time and allows more time and effort to be dedicated to providing care to elderly people with complex needs (Osterman, 2017[27]).
Another mechanism that has been used is to control entitlements or reduce the availability of services in the care package (Gori and Luppi, 2022[28]). In a number of countries, the value of benefits is not necessarily updated annually nor indexed to inflation. Reducing care responsiveness by increasing waiting times or the length of the needs assessment has also happened in some OECD countries at times of fiscal constraints. Gori and Lupi (2022[28]) also point out that some Nordic countries, the Netherlands, England (United Kingdom) and Japan reduced the care packages while others reduced the care intensity by introducing caps to the number of hours that would be paid for by public support systems. However, such strategies might have unintended consequences. Failing to increase the value of LTC benefits can put some individuals at a greater risk of economic hardship. Similarly, limiting the number of beneficiaries or the scope of services provided may result in higher costs elsewhere within the system either immediately or in the future.
References
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← 1. France’s Generalised Social Contribution has relatively low rates and relies on a very broad base (labour income, capital income, pensions, unemployment benefits, etc.).