With population ageing, the demand for helping older people with daily activities – so-called long-term care – is set to increase across OECD countries by more than one-third by 2050. Older people with long-term care needs are more likely to be women, 80-years-old and above, live in single households, and have lower incomes than the average. Currently, across OECD countries, publicly funded long-term care systems still leave almost half of older people with care needs at risk of poverty, particularly those with severe care needs and low income. Out-of-pocket costs represent, on average, 70% of an older person’s median income across the OECD. This report suggests avenues to improve funding to make long-term care systems better able to meet the demand for their services, and suggests policy options to improve the targeting of benefits and seek efficiency gains to contain the costs of long-term care.
Is Care Affordable for Older People?
Abstract
Executive Summary
Population ageing is accelerating, putting further pressure on the fiscal capacities of countries to provide adequate long-term care (LTC). According to the OECD report Health at a Glance 2023, more than 242 million people were aged 65 and over across OECD countries in 2021, including more than 64 million who were at least 80 years old. The share of older people will continue to increase, with the OECD average share of those aged 80 and over projected to double from 4.8% to 9.8%. As individuals age, their physical and mental health often decline. They develop difficulties in performing everyday tasks or so-called activities of daily living (ADLs), such as bathing, and instrumental activities of daily living (IADLs), such as managing finances and cleaning. These individuals require services to assist with such activities. Ageing-driven LTC demand is further intensified by the declining supply of informal or family caregivers, as smaller households, relatives living far away, and increased female labour market participation limit the pool of potential informal carers available to older people.
The total cost of LTC can be very high compared to an older person’s disposable income. In the absence of public benefits and services, most older people would not be able to afford adequate formal LTC. Costs can be particularly high for individuals with severe needs, with the total costs of LTC representing between one to almost seven times the national median income across countries. Older people on lower incomes may struggle to afford care, even though more than half of the countries covered in this report have progressive income‑testing mechanisms designed to ease the burden on these individuals.
Despite public benefits and services, the out-of-pocket costs in some countries can be substantial, especially for those with severe needs and low income. High out-pocket costs for individuals leave little flexibility to pay for other costs, such as housing expenses, clothing, and food. For individuals earning a median income with severe LTC needs, institutional care would be unaffordable in six countries since the out-of-pocket costs are higher than their income. To pay for home care, an older person with severe needs would have to devote more than half of their income in 16 countries, leaving less than half of their remaining income to cover the basic living expenses. In seven countries, out-of-pocket costs for older people with low income and moderate needs exceed half of their income. This number increases to ten countries for those earning a median income. Additionally, around 40% of the analysed countries expect individuals to use part of their wealth to cover LTC costs. In 11 of these countries, individuals earning the median income are expected to pay more than their income for institutional care.
Public benefits and services reduce poverty risks associated with LTC costs but not always significantly. Without such services, between 42% and 95% of the old age population with LTC needs would be at risk of poverty due to high out-of-pocket costs. LTC benefits and services reduce poverty risks by almost 30 percentage points across countries. The LTC systems of Denmark, the Netherlands and Finland reduce poverty risks through public benefits and services by more than 70 percentage points. However, poverty reductions can be close to zero in other countries. Additionally, close to 50% of older people with needs would still be at risk of poverty even after receiving public benefits and services in half of the countries analysed in this report. The poverty rates for individuals with LTC needs (even after receiving social protection) are more pronounced among those aged 80 years and over, compared to those aged between 65 and 79 years. Similarly, women face higher poverty rates after paying for LTC, even with public benefits and services, compared to the average poverty rates among older people. Overall, countries with higher public LTC expenditure, less stringent means-testing and in-kind benefits achieve a greater reduction in poverty risks related to LTC.
With demand for LTC increasing, budget pressures will intensify in OECD countries, especially when considering additional expenses to fund better access and adequacy of benefits. The demand for LTC is projected to increase by more than one‑third until 2050. Based on the projections of older people needing care and pressures to deliver access to more people, current expenditures across the OECD are expected to multiply by 2.5 times by 2050. If countries additionally improved the generosity of their LTC systems to reduce the current high out-of-pocket costs for individuals and the significant risk of poverty, this could result in quadrupling LTC expenditures by 2050.
Policy options are needed to ensure fiscal sustainability while addressing current gaps in adequacy. Three non-mutually exclusive options are available to countries:
Seek additional sources of funding for LTC. Expanding the sources to fund LTC systems beyond labour income is worth consideration, while ensuring an adequate intergenerational sharing of the burden. Exploring innovative private contribution options and pre‑funding mechanisms are also good starting points. For example, Slovenia initiated a LTC reform in 2023, which will introduce a LTC insurance to fund new benefits and services. Both Germany and Luxembourg incorporated an element of pre‑funding into their LTC systems. In France and the United States, life insurance and LTC group insurance is available.
Improve the targeting of LTC benefits and services. Targeting individuals with high needs and fewer resources can promote adequacy in a context of limited resources. In a number of countries, making cost-sharing more progressive along the income distribution can lead to lower spending compared with the current situation, without an increase in poverty. In other countries (Italy, Slovenia, Spain, Greece) targeting public benefits towards those with higher needs reduces poverty while spending increases are much smaller compared to policies focused on reducing out-of-pocket costs only.
Improve efficiency and contain the costs of LTC. Both promoting healthy ageing and productivity improvements could lead to 13% lower expenditures by 2050. Improved prevention, smarter use of technology and task delegation among workers are some of the options that countries are promoting to improve efficiency. Countries like Denmark and Norway have introduced home visits to foster healthy ageing while Australia, Japan and New Zealand have also promoted reablement to help older people recover autonomy loss. Japan and the Nordic countries have improved labour productivity through the use of technology, while the Netherlands sets expenditure targets for LTC and adjusts maximum prices for services and providers accordingly.
