Is Care Affordable for Older People?

Report

OECD Health Policy Studies

29 October 2024

5. Policy solutions for balancing affordability for users and fiscal sustainability

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Abstract

This chapter briefly discusses the impact of population ageing and increased access to long-term care on future expenditures as well as the impact of making care more affordable for people. The chapter outlines three possible policy options for countries for ensuring the sustainability of long-term care systems. It first discusses possible policies to raise funds for long-term care. Secondly, the impact of better targeting of long-term care benefits is presented. Finally, the chapter describes what countries are doing to achieve efficiency gains to contain rising long-term care expenditures.

Introduction

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As populations age, the pressure grows to ensure the provision and affordability of long-term care (LTC) services for all older people who need support. Prior to the pandemic, LTC spending was the health spending category with the highest growth rate and was projected to outpace health spending growth again in coming years (OECD, 2023[1]). Upward pressures on costs, in addition to population ageing, are also expected due to increased expectations of quality of life in old age, driven by rising incomes. This situation will create significant budgetary pressures, requiring a re‑evaluation of LTC financing in the future.

Previous OECD work highlighted certain policies which were deemed crucial to achieve resilient LTC systems (OECD, 2023[2]). Financial sustainability was highlighted as one of them and a discussion on how to increase the funding for LTC was considered as an important element for resilience. In addition to funding options, other OECD work highlighted the need to seek better value for money and promote targeted universalism (Colombo et al., 2011[3]). Targeted universalism is described as mechanisms within a universal system of entitlements where more funding goes towards those who need it most. As part of seeking options to improve value for money, policy gains in this labour-intensive sector need to be found (OECD, 2020[4]).

This chapter considers options for reform to improve affordability and maintain the sustainability of finances, including assessing public and private insurance versus tax-based options to raise additional funds in view of growing demand. It also assesses how countries can modify means-testing and target more according to people’s needs to ensure better targeting of resources. To illustrate the impact of various policy options, the chapter refers to a series of scenarios, with detailed descriptions provided in Table 1.3 of Chapter 1. In addition, policy reforms to improve productivity and healthy ageing are also discussed. The chapter relies on the OECD LTC model of comparable social protection indicators and uses this model to assess the impact of reform options on public expenditures (Cravo Oliveira Hashiguchi and Llena-Nozal, 2020[5]).

Key findings

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Demand for long-term care (LTC) will continue to grow and put pressure on the sustainability of LTC systems. 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 annually by over 4% until 2050. There are large variations across countries with countries such as Belgium, Hungary and France needing an annual increase below 2%, while others such as Poland and Slovenia facing much higher possible expenditures of more than 7% annual increases.
Improving the affordability of LTC for users will further exacerbate financial pressures for countries. Currently out-of-pocket costs remain high in a number of countries and fully eliminating them will require increasing expenditures by 6% annually until 2050. In countries where systems are generous and the out-of-pockets costs associated with LTC are low, such as Belgium, Denmark and Finland, the annual increase would be slightly above 2%, driven mostly by ageing and increased coverage. In other countries, where gaps in social protection for LTC are large, the annual increase is likely to be more than 10%.
Countries are likely to seek additional sources to fund LTC but options to manoeuvre are tight. LTC is mostly funded through either taxes or a mix of taxes and contributions. As the tax wedge on labour is often high, countries that need to look for additional resources could consider more broad-based funding sources that are less reliant on labour income, such as other taxes, or opt for creating an insurance dedicated to LTC as in Slovenia. It would be paramount not to place the entire burden of funding LTC on younger generations and ensure intergenerational fairness by also raising funds from older generations. In many countries, pension income is low which limits this option. Countries could look for innovative financing options also from the private sector, which are currently scarce due to regulatory barriers.
Countries could better target their existing LTC funds to balance sustainability and affordability for users. Implementing more progressive income‑testing and focusing on those with more severe needs can help achieve this balance. Improved income and needs targeting can reduce LTC spending and poverty among care recipients, with varied impacts across countries. While wealth-testing aims to reduce LTC spending while protecting the most vulnerable older people with needs, low thresholds can lead to strategic behaviours such as dissaving or bequests. To mitigate these risks, countries have adopted measures such as look-back periods. Progressive wealth-testing, as implemented in Spain and England, can further ensure equitable resource allocation, and prevent wealth manipulation.
Countries should look into policy options that promote efficiency and help contain the costs of LTC. Both investing in healthy ageing and increasing LTC labour productivity through a more efficient use of human resources and innovative approaches to LTC provision can reduce the predicted growth of LTC expenditures by 31 percentage points in 2050. Nordic countries, Australia, the United Kingdom and Japan have promoted strategies to strengthen the prevention of LTC needs and/or reablement in order to recover autonomy loss. Innovative models of community living are also being developed in recent years. A number of countries, including Japan and some Nordic countries, have utilised new technologies to increase the productivity and reduce the labour costs of LTC. Countries like the Netherlands, Spain and Germany use pricing models for sustainable financing of LTC.

5.1. Public LTC systems will face large pressures

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Public LTC systems across OECD countries are expected to face significant pressures in the coming years. The primary driver of these pressures is population ageing, which will substantially increase the number of people with care needs and, consequently, the demand for LTC services. Additionally, addressing existing gaps in affordability and coverage is crucial for reducing poverty among older people with LTC needs. Balancing the need for equitable, accessible care with sustainable funding will be a critical challenge for policy makers. Ensuring that LTC systems can meet the growing demand while maintaining financial sustainability will require innovative strategies and robust policy measures.

5.1.1. Population ageing will put pressure on funding for LTC

The number of older people with needs is projected to increase in all analysed countries due to population ageing, placing additional pressure on LTC funding. To maintain the current level of coverage (the share of older people with needs receiving public support for LTC) and generosity (the share of an individual’s LTC costs covered by social protection) by 2050, OECD countries will need to increase their annual spending on LTC by nearly 3% on average (see Figure 5.1). This projected increase aligns closely with the pre‑pandemic annual growth rate of health spending (OECD, 2019[6]).

The pressure on LTC funding due to population ageing varies significantly across countries. In countries like Hungary, Latvia and Finland, the predicted average increase in LTC spending is 1% or less. This low number is primarily due to the low share of people in the oldest age groups and with severe needs in these countries. The cost of LTC for older people with severe needs, and consequently the public support invested in them, is the highest compared to other groups. Although they represent a small fraction of all older people with needs, changes in the size of this group have the most significant impact on total LTC spending. Conversely, in countries such as Korea, the Slovak Republic and Luxembourg, the average annual growth in LTC spending will need to exceed 4% to maintain the current level of generosity and coverage.

However, this increase merely sustains the current level of support and, in many countries, population ageing is likely to be accompanied by additional pressures to expand the share of people receiving support (coverage). To enhance the LTC systems’ coverage, the growth rate of LTC spending must exceed the average health spending growth rate. While the average annual growth rate of LTC spending is projected to be 2.6% across OECD countries due to population ageing alone by 2050, enhancing the LTC coverage simultaneously would push up this rate to 4% (see Figure 5.1). This means that OECD countries will need to increase LTC spending annually by an additional 1.4 percentage points on average, beyond the increases required by population ageing. This goal may be particularly challenging for countries where LTC expenses are already projected to rise significantly due to population ageing.

The additional cost caused by increasing the coverage of public support for LTC to a minimum of 60% is influenced by the current levels of coverage and generosity. The projected increase is low in countries where LTC coverage is already high, such as Belgium, France, Denmark and the Netherlands, meaning that achieving 60% coverage does not require substantial additional expenditure in these countries. The additional increase in LTC spending is also low (below 0.25 percentage points) in countries like the United States and Croatia due to their highly means-tested and less generous systems. This suggests that while it is relatively easy to increase coverage, its impact on poverty reduction might be limited. The highest additional costs (more than 3 percentage points) are seen in countries with currently low coverage levels (i.e. Lithuania and Slovenia), and/or without means-testing (i.e. Poland and Malta).

Figure 5.1. Average annual change in public LTC spending considering the effect of population ageing and 60% public coverage
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Assuming reaching the coverage and generosity target by 2050

5.1.2. Addressing gaps in affordability will reduce poverty if LTC expenditures increase but is likely to exacerbate the strain in public finances

Given the high costs of meeting LTC needs, it is challenging for many analysed countries to fully cover them with public support. If OECD countries aimed to fully eliminate out-of-pocket expenses for LTC by 2050, they would need to increase LTC spending by an average of 6%, which is twice the increase required to maintain the current level of generosity while also reaching 60% coverage (see Figure 5.2). This projected increase is also twice the average pre‑pandemic growth rate of health expenditures, making it a difficult target to achieve.

For countries with currently generous LTC systems, implementing the No copayment scenario may be significantly easier than for those that currently cover only a small share of LTC costs according to the simulation presented in Figure 5.2. In Belgium, Denmark, Finland and the Netherlands, the predicted annual growth in LTC spending is below 3% under the No copayment scenario. Conversely, in countries like Poland, Czechia and the Slovak Republic, annual LTC spending growth needs to exceed 10%, which may far exceed the financial capacity of these countries.

In response to these challenges, countries and policy makers are exploring alternative approaches, such as capping out-of-pocket expenses, which could positively impact poverty reduction while requiring lower levels of funding. An example of such a solution is proposed in the Dilnot Report, which suggested capping an individual’s lifetime out-of-pocket expenses at an amount between GBP 25 000 and GBP 50 000 in England (Commission on Funding of Care and Support, 2011[7]).

In most countries, capping out-of-pocket expenses for LTC (Reduced copayment scenario) decreases the predicted growth of LTC expenditures while still offering better protection for older people compared to the current situation. The Reduced copayment scenario presented in this chapter assumes a progressive increase of the cap on people’s out-of-pocket payments as their LTC needs increase. It grants a greater reduction of copayments for those with more severe needs (countries aim to cap out-of-pocket expenses at 60%, 40%, and 20% of the LTC cost for older people with low, moderate, and severe needs, respectively). The reduction in overall public LTC spending growth compared with the No copayment scenario, is relatively consistent across all countries, ranging between 1 and 2 percentage points (see Reduced copayment scenario Figure 5.2). For countries like Belgium, Denmark and Finland, which already have generous LTC systems, this solution may not be particularly attractive unless they face serious financial challenges because it is likely to have negative implications on poverty. The Reduced copayment scenario is more appealing for countries with medium generosity and that would – under the No copayment scenario – face high projected annual increases in LTC spending, such as Hungary, Latvia and Ireland. The Reduced copayment scenario would allow these countries to reduce spending growth by up to 50%.

Figure 5.2. Average annual change in LTC spending in the No and Reduced copayment scenarios
Copy link to Figure 5.2. Average annual change in LTC spending in the No and Reduced copayment scenarios

Assuming reaching the coverage and generosity target by 2050

5.2. Countries will need to consider different options for sustainable funding

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Many citizens are concerned about not being able to afford LTC services for themselves and their relatives and support greater spending on LTC services, even if this would mean increasing taxes and social contributions. In 2020, between about 45% and 90% of people reported that they were concerned about not being able to access good-quality LTC, according to the OECD Risks That Matter Survey (OECD, 2023[8]). The growing number of older people and current gaps in social protection mean that a significant share of older people risk being in poverty due to the out-of-pocket costs of LTC. Current evidence suggests that households are already experiencing harsh financial consequences due to LTC costs. In the United States, a survey showed 56% of adults, including older adults, who contributed financially to their own or another’s LTC or acted as a caregiver, had to cut back on spending on food, clothing or other basic household items to be able to afford LTC costs and one‑third had trouble paying rent or other utilities (Hamel and Montero, 2023[9]). In addition, around 20‑50% of people would be ready to pay an additional 2% of their income in taxes and social contributions to fund more public support for LTC (OECD, 2023[8]).

5.2.1. Ensuring broad-based funding

First, pooling existing funding can be a step towards better funding. LTC systems are sometimes spread out across health and social sectors, and different levels of government, which results sometimes in both overlaps and gaps in access and coverage, and possible cost shifting. Pooling existing funding to one well-defined budget can improve transparency and facilitate the distribution of existing funding in an effective and efficient manner. It would help to reduce unnecessary activities, overuse of services, duplication of effort or cost shifting (Lonsdale et al., 2015[10]).

Second, given population ageing, many countries would need to look for a variety of different options to raise public funds, including introducing a LTC insurance and/or expanding the role of certain taxes and ensuring a broad base for taxation. Currently, only a few countries rely mainly on a LTC insurance (Germany, the Netherlands, Belgium, Luxembourg, Japan, Korea), while the rest relies solely or mostly on tax-based systems or taxes complemented by social contributions.

Tax-funded LTC systems exist across many OECD countries, including the Nordic countries, Austria and Spain. Nordic countries typically have universal coverage under one single programme. The main advantage is that they have a broad tax-base and expenditure is matched to resources. The disadvantages of such systems are fluctuations in the size of the funding base, especially in the face of an economic recession as well as a lack of transparency in the allocation of funds because, most of the time, taxes are not necessarily earmarked to LTC. In addition, countries might use means-testing in tax-based funding to help target scarce formal care, but it may increase stigma, reduce take‑up and increase administrative costs.

A LTC system that is purely tax-based can be a challenge as in some countries working-age taxpayers are already overburdened. Across the OECD, the average tax burden a single, average‑wage earner faced in the OECD was 34.8% of pre‑tax earnings in 2023 due to individual income taxes and payroll taxes (OECD, 2024[11]). In many OECD countries, the pool of workers will decrease along with population ageing and further limit avenues for relying on taxable incomes among the working age population. To counter such a trend, countries would need to implement policies aiming at increasing the working-age population to increase the tax base, for instance by reducing early retirement and promoting the employment of older workers or measures to reduce informality in the economy to broaden the tax base.

To avoid further burden on labour income, countries could consider other sources of taxation beyond personal income taxes. Strengthening the role of recurrent taxes on immovable property, in particular by ensuring that they are levied on regularly updated property values, could be an avenue to raise additional government funds which could be used for LTC. Having a fixed percentage of the VAT tax could be earmarked to increase the tax base of LTC financing. Reducing VAT exemptions in a number of countries could also contribute to raising overall revenues from VAT. France has also explored an original way of financing care for its ageing population: since 2004, the government introduced in the labour law a “solidarity day” in which employees work for free for a day and give their day-worth wage to the state for LTC. In addition, LTC is also funded since a decision in 2020 by levying an additional 0.15 points from the contribution for social security (Contribution Sociale Généralisée – CSG) which is taken from working age revenues but also pensions, wealth and capital gains. Other options of taxes to fund LTC that do not rely on labour income include using health taxes (excise on tobacco and alcohol) or taxes on lottery, as used in Portugal.

Slovenia is an example of country which decided to introduce an insurance‑based system for LTC. In July 2023, the regulation of the new LTC insurance was introduced. All persons insured under compulsory healthcare insurance and their family members over the age of 18 have been included in compulsory LTC insurance. As of 1 July 2025, compulsory contributions in the amount of 1% of gross salary will be paid by employers and workers, 2% of the gross pension base by sole traders, and farmers, and 1% of net pension by pensioners. In addition, the state budget will allocate a maximum of EUR 190 million a year for LTC. Public expenditure on LTC is therefore expected to reach 1.40% of GDP in 2026. From 1 January 2028 onwards, the Act also allows for the possibility of introducing co-payments by users up to 10% of the service value if other funds are insufficient. Advantages of a LTC insurance include more transparency in managing the funds and horizontal justice and are important for the public opinion. The transparency is improved because the introduction of a LTC insurance links funds to specific policy.

In Germany, one perceived strength of LTC insurance is its horizontal justice; the services are the same for everyone, independent on the income of the people in need, while the contributions’ level increase with the income of contributors. These advantages may make people more willing to pay to insure for unpredictable risks, although a negative public opinion is often the major hurdle for governments to fund more LTC. Financing LTC through an insurance framework is considered an effective way to manage costs and the utilisation of LTC services (Klimaviciute and Pestieau, 2020[12]).

A drawback of a LTC insurance is the reliance on employee’s contributions, which can have negative impact on equity and employment. Unless the insurance is extended to the unemployed and the self-employed, it will have a limited tax base, which raises issues regarding equity. For those who are not working, the LTC insurance contribution would still need to be paid from taxes. A LTC public insurance also raises many questions about the amount of premiums to be paid and by whom to limit the possible negative impact on employment and take into consideration intergenerational fairness. A LTC insurance might also have little in-built cost controls. One important element to keep in mind is that the creation of a LTC insurance creates the entitlement that anyone should access LTC, at least up to a certain limit. If demand increases, people are entitled to the services.

5.2.2. Intergenerational sharing and pre‑funding

Currently, there are significant intergenerational transfer mechanisms embedded within the current financing of LTC systems in a number of countries. In the Netherlands premiums are collected from everyone with taxable income from age 15 while in Japan contributions start from those aged 40, tilting the balance away from younger people. In Korea, younger people contribute but their eligibility for benefits is restricted which has resulted in a large intergenerational transfer.

At the same time, it is paramount that LTC does not shift too large a financial burden on future generations and that there is intergenerational fiscal equity. This has come to the forefront of policy discussions on LTC financing as a result of the expected reduction in the size of the working-age population compared to the older people. Concerns are often raised with respect to the funding of age‑related expenses, such as LTC, by requiring a relatively smaller future generation to pay for a portion of the care of a relatively larger previous generation (that is, on a pay-as-you-go basis).

A common argument is that older people benefit from care and should perhaps contribute more towards its funding. One possibility is extending or increasing contributions for people beyond retirement age, but this could weaken work incentives for those seeking to work beyond retirement age (Bottery et al., 2018[13]). Contributions of retirees might also be limited in a number of OECD countries if pensions are low and might not provide enough additional funding. Another possibility is to determine co-payment levels according to the amount of wealth (including savings and home ownership), which may be an intergenerationally fair policy option than raising more funding from working-age population in countries where older people have significantly more wealth and less income. In 2024, Australia’s Aged Care Task Force concluded not to introduce a new tax or levy to fund its LTC system and instead to seek more funding from accumulated wealth. These recommendations are based on Australia’s country context that the distribution of wealth is becoming increasingly skewed towards older people (Aged Care Taskforce, 2024[14]).

Furthermore, pre‑funding can smooth the effects of demographic ageing by limiting the amount of debt that will be sustained by future generations, but full pre‑funding is currently unexplored in most countries. In Germany, the First Act to Strengthen Long-Term Care (Estes Pflegestärkungsgesetz) in 2015 defined that annual amount of 0.1 “contribution rate points” (Beitragssatzpunkte), which corresponded to around 1.5 billion euros in 2019, be channelled from the contribution income into the new “long-term care provision fund” (Pflegevorsorgefond). The fund is intended to cushion future increases in contributions and secure LTC funding in the long term. It is structured as a special fund of the social LTC insurance scheme and is managed by the German Federal Bank. The funds were supposed to be saved until 2034 and from 2035, a portion of the accumulated capital should then have been used over a period of at least 20 years to mitigate the development of contributions and maintain the level of benefits (Deutscher Bundestag, 2023[15]). However, the annual payment of 1.9 billion euros into the fund has now partially been suspended – the allocation to the LTC provision fund for the years 2024 to 2027 will be reduced to EUR 700 million. The allocation of funds to the LTC provision fund will be suspended for 2023 and is to be made in 12 monthly instalments in 2024 (Deutscher Bundestag, 2023[15]). In Luxembourg, the reserve has to represent at least 10% of the annual LTC insurance expenses. In 2022, the reserve was equivalent to about 45% of annual LTC insurance expenses (CNS, 2024[16]).

5.2.3. Options for partial private financing

Given demographic challenges and limited resources, countries could look into the possibilities of complementing public and private funding and addressing the market failures of private funding to leverage new financial resources towards LTC, thereby alleviating future potential pressures for governments to increase their support.

The private sector currently provides only limited options for pooling the risk of high LTC costs. In most countries there are few private insurance options available, and even where they do exist, they remain a niche product covering only a small proportion of total LTC costs (Colombo et al., 2011[3]). As briefly mentioned in Chapter 3, there are a number of possible explanations for the lack of private insurance for LTC. Market failures may be important, such as adverse selection and moral hazard. Adverse selection would translate in only those with high-perceived LTC risk buying in or keeping the insurance policy, while moral hazard would translate in insures using more LTC services that they would have required because they are covered. Insurers face significant uncertainty regarding future costs, setting relatively higher premia or paying lower benefits. Challenges associated with the ability of insurers to control the covered LTC risk might also lead to premium volatility. Low demand for private LTC insurance may highlight that people may also not plan sufficiently due to a myopic view of risk. Voluntary private LTC pooling mechanisms are likely to remain limited to those with high income.

Governments can encourage the take‑up of voluntary private LTC to serve as a complement to the existing public LTC pillar. Regulatory intervention and tax incentives can be used to foster broader access to private LTC coverage. Typical tax advantages include deductions or tax credits based on the level of private LTC insurance premium paid. Preferential tax treatment for private LTC insurance exists in the United States, Spain, Mexico or Austria. Preferential tax treatment needs to be considered carefully in terms of its effectiveness to affect demand and equity considerations. Analysis from the United States suggests that the average tax subsidy raises coverage rates by 2.7 percentage points, or 28%, but that this is concentrated among high-income individuals (Goda, 2011[17]). Alternatively, support towards the purchase of a private LTC insurance could be targeted to lower-income individuals thereby compensating for the repressiveness of risk-related premiums. Specific LTC regulations have been implemented in Germany as part of its compulsory private LTC insurance market, which specify that premia and benefits be established in line with those of the social compulsory LTC insurance. Compulsory LTC premia are also limited to maximum premium paid under the public social LTC insurance system and providers generally cannot exclude or charge extra premia for those with pre‑existing conditions.

Group insurance coverage 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, including the potential ability to negotiate better coverage solutions, as well as lower premia. Group plans may also result in fewer exclusions, based on the spread risks within a large group. 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. Private insurance in France is employer-sponsored and/or as part of supplementary health insurance. As a result, most of the LTC private insurance in France (75%) is group-based (Doty, Nadash and Racco, 2015[18]). Employer-sponsored plans are relatively inexpensive, coverage may continue even after a change of job in many cases and the insurance offers cash in the event of need, instead of reimbursement of services.

A number of initiatives in terms of mixed insurance products may have the potential to direct additional private resources towards LTC. Some insurance providers offer LTC insurance policies as part of life insurance policies, which tend to have a much larger diffusion. Typically, these provide cash advances in the event that the policy holder requires LTC for an extended period of time, paid out of the death benefit or the accumulated savings build into the policy. This type of life insurance policy is available in a number of OECD countries such as the United States, France, Canada and Australia.

Home equity programmes such as reverse mortgages might provide a solution to tap into household’s wealth without having to cash it immediately but are also likely to remain small. In a reverse mortgage, someone can borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home (Bonnet, Juin and Laferrère, 2019[19]). Contrary to private LTC insurance, reverse mortgages can be purchased at very old age, regardless of the borrower’s health status. At the same time, market failures constraint supply due to adverse selection and moral hazard as for private insurance and demand is also constrained due to high non-interest costs and abuse concerns (Martinez-Lacoba, Pardo-Garcia and Escribano-Sotos, 2020[20]).

Reverse mortgages are available in a number of countries such as Canada, France, New Zealand, the United Kingdom, the United States, and under certain conditions in Germany. In the United States, such products are more developed given the relative strict eligibility criteria of public systems and the fact that it has also one of the strongest regulations for the government-insured scheme. The insurance guarantees that the borrower’s debt will never exceed the property value and that borrowers will receive regular payments from the loan even if the property loses value or the lender becomes insolvent (Paying for senior care, 2020[21]; Bridge et al., 2009[22]). In the United Kingdom, there is also strong regulation with the Financial Conduct Authority requiring prospective clients to seek independent counselling and the market has grown since 2008 with lower interest rates and more competitors (Knaack, Miller and Stewart, 2020[23]). The reverse mortgage market is still small, despite high elderly homeownership rates and high demand. This small market is concentrated in London, Southeast and Southwest, where house prices are high. This is partly because of the risks faced by suppliers – providers need high house price growth to make profit on reverse mortgages. In other countries, such programmes still seem to be more products of last resort than well-thought purchases as part of a retirement planning or a healthcare plan (Knaack, Miller and Stewart, 2020[23]). Estimates indicate that there are about 4 000 reverse mortgage loans sealed every year in France – a low number (Notre temps, 2015[24]) while it is estimated that 49% of dependent individuals could pay for LTC if they took out reverse mortgages on their main residence (Bonnet, Juin and Laferrère, 2019[19]). A potential policy option to stimulate the use of reverse mortgages would be for the public administration to act as lenders (Roberto Martinez-Lacoba, 2020[25]). For instance, a study of the potential for such products in Croatia suggests that a robust regulatory framework for reverse mortgages will be necessary as well as a strong role for the Croatian Government (Marijana Badun, 2020[26]).

5.3. Countries could also consider universality with better targeting

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To ensure the financial sustainability of LTC systems, countries could consider a strategy that combines universality with better targeting of resources. This approach aims to provide universal access to LTC services while focusing support on those who need it most. By improving the targeting of LTC benefits, countries can ensure that limited public resources are allocated more effectively, helping to protect the most vulnerable populations without exacerbating budgetary pressures. This strategy involves assessing the income, wealth, and LTC needs of older people to determine the level of support required. It balances the goals of broad accessibility and financial prudence, potentially reducing the growth of LTC expenditures while ensuring that those with the greatest needs receive adequate support. Such an approach could also mitigate the impact of population ageing on LTC expenditures.

5.3.1. Ensure that those with higher needs get better social protection

One potential solution to improve targeting is considering a progressive “needs-testing” system, where the level of benefits is adjusted according to the level of needs. It ensures that public support relative to the cost of LTC is most generous for individuals with severe needs and least generous for those with low needs. This approach allows countries to protect the most vulnerable group (older people with severe needs), who are most likely to face the highest care costs, while limiting LTC expenditures by lowering support for those with low needs. As seen in Chapter 3, all countries currently have some differentiation of the level of benefits depending on needs since public support tends to be greater for severe needs. However, countries vary in this differentiation, and, for some, differences are small, while in others there is a steep differentiation and people with low needs do not receive any public support.

In some analysed countries, progressive targeting of public support based on people’s LTC needs is less costly compared to the No copayment scenario with almost no difference in the impact on poverty levels. Figure 5.3 compares the impact of the Reduced and No copayment scenarios on public LTC spending and the poverty rate among recipients. In the Reduced copayment scenario, countries use needs-testing to reduce LTC spending by capping out-of-pocket expenses to 60%, 40%, and 20% of the cost for older people with low, moderate, and severe needs, respectively.

According to these assumptions, in countries like Latvia, Malta and Hungary, where LTC costs are lower, introducing needs-testing would reduce LTC spending without significantly increasing the poverty risk among recipients. In Italy, needs-testing marginally increases LTC expenditures while reducing poverty among care recipients, making it an attractive alternative. In countries like Lithuania, the Slovak Republic, and Portugal, introducing needs-testing leads to a smaller increase in LTC expenditure than under the No copayment scenario, while achieving similar reductions in poverty risk.

Other countries need to weigh in the potential pros and cons of a more progressive needs-testing system in terms of trade‑offs between expenditures and poverty reduction. In countries with relatively generous LTC systems, such as Finland, Denmark, the Netherlands, Sweden and Luxembourg, implementing a progressive needs-testing system can reduce LTC expenditures by 20%‑30%. However, this also significantly increases the risk of poverty among care recipients (Reduced copayment scenario). In countries like Japan, Belgium, Austria, Ireland and Germany, implementing a No copayment scenario would result in a moderate increase in LTC expenditures (14% on average) while achieving substantial gains in poverty reduction among LTC recipients (9 percentage points on average). Conversely, the introduction of needs-testing can lead to savings in LTC expenditures but also increases poverty, making it a less attractive alternative compared to the No copayment scenario, although it may still be worth considering during periods of fiscal austerity. Finally, in countries like Spain and Greece, where the LTC system is not very generous, both scenarios result in significant increases in LTC expenditures (70% and over), with associated proportional reductions in poverty among care recipients.

Figure 5.3. Change in public LTC spending and poverty rates among care recipients under the Reduced and No copayment scenarios
Copy link to Figure 5.3. Change in public LTC spending and poverty rates among care recipients under the Reduced and No copayment scenarios

Simulated difference compared from the current public LTC expenditure

5.3.2. Improve the progressivity of means-testing

To enhance targeting, countries might consider introducing more progressive income‑testing systems without necessarily compromising the accessibility of LTC. Currently, 28 out of 32 countries and subnational areas covered in this report have some form of income‑testing. Among them, seven countries have systems that are smoothly progressive along the income distribution (see Chapter 3 for a detailed discussion). This progressive approach ensures that as older persons cross certain income thresholds, they do not immediately face significantly higher out-of-pocket expenses. In the remaining countries, thresholds are abrupt but differ greatly in the income level where they are set. In countries like Croatia and Estonia, thresholds are set low as they are seen as part of the social assistance services focused on supporting the most vulnerable groups. This approach helps limiting public LTC expenditures. In countries like Israel and Finland, thresholds are set at very high-income levels, aiming at providing relatively comprehensive, generous support to nearly all older people, regardless of their income. Contrary to the other two countries, this tends to push expenditures at a relatively higher level.

Figure 5.4 presents the simulation of a scenario where countries introduce a smooth and progressive income‑testing system while maintaining current maximum support and coverage (Income‑testing scenario). In this scenario, the system is designed to protect the most vulnerable older people with LTC needs: those with incomes below the poverty line receive the maximum public support granted under the Ageing scenario. The second goal of the proposed progressive Income‑testing scenario is to limit public LTC expenditures. To achieve this, public support for LTC gradually decreases (following an inverse‑quadratic function), from maximum support for individuals with incomes at the poverty level to zero support for those with incomes above the 80th percentile of the disposable income distribution for older people.

Introducing the Income‑testing scenario brings advantages to the majority of countries, but the magnitude of the impact varies significantly. In a first group of countries (Italy, Greece and Sweden), it brings a dual advantage as it results in lower spending on LTC (16% on average) and reduced poverty among care recipients (by 5 percentage points on average). In a second group of countries (including Czechia and Austria) more progressive cost-sharing does not significantly change poverty rates among recipients but still reduces LTC spending (30% on average). This opens opportunities to increase the maximum support and decrease poverty rates among care recipients. In a third group of countries (such as Spain and England), poverty among recipients would decrease significantly, but it would come with an increase in public spending, although such increase in expenditure would still be much lower than in the No copayment scenario. Finally, the Income‑testing scenario would increase poverty among LTC recipients in those countries with high support and high cost of LTC, like Denmark and the Netherlands, albeit with a reduction in spending.

Figure 5.4. Changes in poverty rates and government spending under the Income‑testing scenario
Copy link to Figure 5.4. Changes in poverty rates and government spending under the Income‑testing scenario

Simulated difference compared from the current public LTC expenditure

5.3.3. Enhance the effectiveness of wealth-testing

More than half of the analysed countries and regions use some form of wealth-testing to determine eligibility for LTC support, primarily in institutional settings. Linking public support for LTC to an individual’s wealth is meant to help mitigate potential sources of inequality and to enhance the equity of the LTC system. While income, as measured for tax purposes, often determines eligibility for public assistance, it is an imperfect measure of the total resources available to older adults who may have acquired wealth throughout their lifetime. Many older individuals have a disproportionately higher share of income from capital and investments in total disposable income compared to the working population (10% vs. 4.5%1) (Woolley, 2023[27]). Additionally, some capital gains do not count towards taxable income, thereby not affecting declared taxable income.

At the same time, introducing wealth-testing with low thresholds may lead to unintended consequences, such as strategic behaviour by older individuals to fall below the threshold. To address this, countries have implemented preventive measures. For instance, in the United States, in 2016, the Deficit Reduction Act of 2005 was signed into law, extending the look-back period on wealth transfers to five years and shifting the penalty period from the time of improper transfer to the time of Medicaid application. This measure resulted in an 11% reduction in transfers to children and a decrease of USD 4 860 in the average total amount of transfers before application (Liu and Mukherjee, 2020[28]). Similarly, New Zealand has implemented a five‑year look-back period for wealth flows, with exceptions for gifting wealth in recognition of care (Ministry of Social Development, 2024[29]). An alternative approach is to make an assumption on capital gains based on a given amount of wealth, as is already done in Flanders (Belgium) and the Netherlands, so that the distortionary effect of setting a certain threshold can be avoided. These approaches help to mitigate the risk of strategic behaviour and ensure that wealth-testing effectively targets those most in need of LTC support.

Countries might consider introducing progressive wealth-testing to better target the most vulnerable older people with needs and to discourage strategic behaviour around wealth thresholds. For example, Spain has implemented a system where 5% of the value of wealth (excluding the primary residence) is added to the income to determine the level of public support for LTC. Similarly, in England, support for older people with severe needs decreases gradually between a wealth of GBP 14 250 and GBP 23 500. These progressive approaches aim to ensure that public resources are allocated more equitably and that individuals do not decrease their wealth through bequests or intentionally reduce their savings accumulation to gain undue advantage.

5.4. Countries should seek to promote efficiency

Copy link to 5.4. Countries should seek to promote efficiency

Enhancing the efficiency of LTC systems is crucial for managing the anticipated rise in expenditures due to ageing populations and increasing expectations regarding LTC quality and availability. To achieve this, countries might implement strategies that promote preventive policies and healthy ageing, thereby reducing the incidence and severity of care needs among older people. Additionally, increasing labour productivity in the LTC sector through better use of human resources and innovative care approaches can significantly limit spending growth. Supporting more people‑centred settings for older people ensures that care is delivered in a more effective and satisfactory manner. Moreover, introducing sustainable pricing of LTC services is essential to keep costs manageable for both individuals and public finances. A combined focus on these strategies will help mitigate financial pressures on public LTC systems, ensuring they remain sustainable and effective in meeting future demands.

5.4.1. Healthy ageing and higher labour productivity might reduce the increase in public LTC expenditures

Promoting healthy ageing can significantly reduce the predicted growth in public LTC expenditures (see Figure 5.5). With life expectancy set to increase in all OECD countries by 2050 (United Nations, 2022[30]), prevention policies can help ensure that older people live these additional years in good health. To simulate this, the Healthy ageing scenario in this report assumes that the share of people with low, moderate, and severe needs remains constant. This scenario leads to a 4 percentage points lower growth in public LTC expenditures in 2030, 14 percentage points in 2040, and 31 percentage point in 2050. These substantial reductions demonstrate that promoting preventive policies can be an efficient tool to decrease the expected future financial burden on the LTC system.

Increasing labour productivity in the LTC sector can also reduce the predicted growth in public LTC expenditures (see Figure 5.5, Productivity growth scenario). The average labour productivity growth in the OECD from 2001 to 2020 is around 1% (OECD, 2021[31]). Given that productivity gains in the LTC sector have historically been smaller, often close to 0 or slightly negative, the productivity scenario assumes that if countries implement the actions discussed in Section 5.4.4, they will achieve an average productivity growth rate equal to half of the yearly productivity growth for the total economy. Consequently, the predicted public LTC expenditures would be 7 percentage points lower by 2030, 17 percentage points lower by 2040, and 31 percentage points lower by 2050. These reductions are similar to those in the Healthy ageing scenario, highlighting the importance of introducing changes in the organisation of the LTC system to achieve significant cost savings and efficiency improvements.

Figure 5.5. Simulated changes in government spending for LTC under the Healthy ageing and Productivity growth scenarios
Copy link to Figure 5.5. Simulated changes in government spending for LTC under the Healthy ageing and Productivity growth scenarios

Change in the sum of all financial protection for LTC for older people who receive public social protection for LTC from 2022

5.4.2. Promoting preventive policies and healthy ageing

The most obvious way to reduce cost in LTC systems would be to reduce potential dependency in later life through lifelong health promotion. As more people live longer, complex health and care needs become much more common, particularly among the oldest people. LTC systems need to move towards a model of care that is more tailored, person-centred, and better integrated with the rest of healthcare (OECD, forthcoming[32]). The lack of co‑ordination between LTC and health systems increases the risk of unnecessary hospitalisation, long hospital stays and readmissions. For example, a study of six areas of England, the United Kingdom, found that care home residents experienced 0.78 emergency admissions each per year on average, compared with around 0.11 for England as a whole (although the areas were not representative of England overall). Even though residents have higher needs, the authors estimated that 40% of admissions from care homes were for conditions that could potentially be managed outside the hospital setting or avoided altogether – such as pneumonia or urinary tract infections (Steventon et al., 2018[33]; Lloyd et al., 2017[34]).

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 individuals aged 75 and older, and Norway for people aged 75 or 80 and above. In Denmark, municipalities provide preventive services, including preventive home visits and activities. Everyone aged over 75 years must be offered a home visit. The offer is also extended to people aged 65‑75 years who are in a special risk group, including widows, people who live in a secluded area and those recently discharged from hospital. Finally, those aged 80 years and over are offered a visit every year. Municipalities can organise group visits for those who usually decline home visits. Municipalities also carry out preventive activities of varying scope and type (such as workshops, education, talks and physical activity) (Kvist, 2018[35]).

Home visits in Denmark, Finland, Norway and Sweden were found to be cost-effective (Kronborg et al., 2006[36]; Liimatta et al., 2019[37]; Sahlen et al., 2008[38]). 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[39]).Preventive home visits to older people in Denmark, mainly by district nurses, are another example of good practice. A three‑year prospective randomised controlled follow-up study showed that training of home visitors was associated with improved functional ability of older people (Hendriksen and Vass, 2005[40]).

A few countries – including France, Germany and the United Kingdom – have policies in place to guide health and care workers on how to help older adults live longer and healthier lives. These usually take the form of prevention measures as part of LTC policies or plans. For instance, in Germany, the 2015 Prevention Act introduced a new benefit for nursing care funds for prevention and health promotion in inpatient care institutions. The health insurance scheme has developed a guideline with health-promoting offers for this target group. It defines nutrition, physical activity, strengthening of cognitive resources, psychosocial health and violence prevention as necessary fields of action. In the United Kingdom, the NHS LTC Plan outlines interventions to help cut smoking and obesity and to double enrolment in type 2 diabetes prevention programmes.

The Active and Healthy Ageing Action Plan 2023‑26 in Portugal focuses on promoting healthy ageing by addressing key areas such as health and well-being, autonomy, lifelong learning, and social participation. The plan emphasises preventive health measures and also supports independent living through initiatives like collaborative housing and home adaptations. Additionally, the plan promotes lifelong learning, with a focus on digital literacy, and encourages older adults’ active participation in society through volunteer work and civic engagement.

Japan has developed an integrated community care system that emphasises preventive care and activities to promote longer healthy life expectancy. Since 2005, the Japanese Government has opened community- centres in every district. The centres are responsible for implementation of preventive care services, outreach and counselling for elderly people in need of care through the use of community health resources networks, and continuous and comprehensive care management support that includes supervision of “care managers” responsible for planning care services provided under LTC insurance (Hatano et al., 2017[41]). The government supports proactive efforts to organise exercise classes and community cafés to increase social participation and reduce isolation. Efforts to promote self-management are also increasing. From 2025, the government is making further extensions to this initiative with the with the establishment of the community-based integrated care system with the purpose of comprehensively ensuring the provision of healthcare, nursing care, preventive care, housing and livelihood support.

Countries can also strengthen LTC workers’ role in health promotion and disability limitation for older people by establishing national prevention policies that guide LTC workers on how to help older people stay healthy for longer, strengthen professional skills at the primary care level to keep elderly people out of institutions and improve geriatric knowledge among health and social workers working in the community.

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[42]). For instance, Danish municipalities have to offer a rehabilitation programme prior to assessing the need for home care. The programme is short and intensive (4‑10 weeks) and comprises one or more of the following elements: training in everyday activities (personal care), physical training, assistive devices and adaptation of the home (Kvist, 2018[35]). In 2018, 4.3% of people aged 65 years and over received rehabilitation services instead of – or alongside – home help (Rostgaard, 2021[43]). Danish evidence suggests improvement in functional ability, better evaluation of working conditions and motivation among staff. Local reports indicate good user outcomes, and some studies show a lower use of home care (Rostgaard, 2024[44]). The probability of receiving home care for frail people aged 67‑87 years decreased from over 35% to about 25% (Rostgaard, 2021[43]). A modelling study in England suggest a very high probability of cost-minimisation thanks to reablement (Bauer et al., 2019[45]). More generally, a body of evidence shows that many specific rehabilitation programmes (e.g. for stroke) are cost-effective (Allen et al., 2018[46]).

5.4.3. Supporting more people‑centred settings for older people

Older people across OECD countries prefer to age at home and in their community. According to evidence from the US, 77% of adults 50 and above wish to age at home (Binette and Farago, 2021[47]). While this might be preferable in terms of quality of life and well-being, in some cases, it might also be a more cost-effective option than institutional care, depending on the system. Between 2011 and 2021, the proportion of LTC recipients who received care at home increased slightly, from 67% to 69%. Increases were particularly large in Australia, Switzerland, Finland, Korea and Germany. While the proportion of LTC recipients living at home has increased over the past decade in most OECD countries, it has declined significantly in Estonia and, Lithuania. Making greater use of home‑based, rather than residential, care may help to reduce per capita costs, although this is not clear cut, depending on the country. Chapter 3 shows that in a range of countries home‑based care may involve higher costs for individuals with severe needs.

At the same time, reducing the share of older people with low and moderate needs residing in institutions could significantly lower LTC costs, as institutional care for these cases is generally more expensive than home care. On average, only 29% of older people in institutional care in OECD countries have severe needs (see Figure 5.6). In countries such as Poland, Finland, Lithuania and Hungary, this share is notably low, close to zero, while it exceeds 50% in Portugal and Spain. This indicates a substantial opportunity to promote home care, particularly for individuals with moderate and low needs. Home care for individuals with low and moderate needs is not only more cost-effective but also preferred by care recipients.

Figure 5.6. Share of people with severe needs among institutional care recipients
Copy link to Figure 5.6. Share of people with severe needs among institutional care recipients

Some countries have actively promoted the use of home care to incentivise ageing in place. The United States has various authorities under which states may cover home and community-based services (HCBS) under Medicaid. States have flexibility to tailor coverage of HCBS in their Medicaid programmes through the use of Medicaid state plan options, waivers (e.g. 1 915(c) HCBS waivers), and demonstrations (e.g. 1 115 demonstrations). For example, under the “Community First Choice Option”, states providing supports and services for home carers can receive higher federal funding. In addition, the United States has programmes, such as the “Money Follows the Person” Program, that provide states with support for transitioning individuals from institutions to the community.

In addition to promoting ageing in place, providing care in a broader range of settings could provide scope to manage down costs as demand increases. Countries are developing a number of 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[48]). Such innovative models of living aim to create a small-scale and/or homelike environment and overcoming the shortcomings of nursing homes in terms of being impersonal. One of the underlying ideas is that the physical, social, and organisational environment of living arrangements are important for achieving positive outcomes for residents. In addition, such living arrangements also have the goal of supporting autonomy, potentially delaying greater care needs, and improving quality of life for older people (OECD, forthcoming[32]).

The Green House model was introduced in the early 2000s in the United States with the goal of a more person-centred approach and has proved successful at identifying clinical changes of residents and improving their mental well-being. Green House model facilities are a small-scale design with private rooms, an open kitchen, and shared dining and outdoor space, where staff have more direct engagement with residents and promote independence. Adoption of Green House models is also associated with some partly reduction in spending from Medicare in terms of hospital costs and stays in skilled nursing facilities (the THRIVE Research Collaborative, 2016[49]). In addition, several studies reported improve quality outcomes for residents of Green House facilities which are likely to impact overall costs and staff monitoring: residents in Green House facilities had a lower fall rate, lower risk of pressure ulcers (1.9%) and using catheters (Williams and Joshi, 2023[50]).

In recent years, there is more discussion about promoting housing arrangements for older people which can promote a more efficient use of housing and also bring in other benefits to older people in terms of possibly delaying needs and costs. One option is a house sharing arrangement, often also named intergenerational housing. In such arrangement, an older person who needs a small amount of help to live independently in their own home is matched with someone who has a housing need and can provide support and companionship. Some EU countries has developed this option, such as Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Spain, Sweden and the United Kingdom. The United Kingdom might have the most advanced house sharing system (Homeshare International, 2020[51]).

In the United Kingdom, some associations offer to facilitate house sharing arrangements. For example, with the HomeShare association, the agreement implies that the older person provides a room and shared facilities rent-free to a home sharer, who, in return, provides 10 hours a week of help around the home. A home sharer does not provide personal care to the older person, such as bathing, medication administration, lifting and feeding but help with so-called instrumental activities of daily living like grocery shopping, cooking, cleaning. Both pay a fee to the association while the association links them with a network which offers advices and support to make house sharing safer and more widely accessible (HomeshareUK, 2020[52]).

A number of such living arrangements have proved to be particularly suitable for people with dementia. In 2021, across the OECD, an estimated 21 million people had dementia (OECD, 2023[1]). Population ageing will likely lead to an increase of people with dementia and could reach almost 32 million by 2040, a 50%-increase. The increase in dementia will put financial pressure on health systems, societies and individuals. In 2019, the global burden of dementia was estimated to amount to USD 972.3 billion in high-income countries (Wimo et al., 2023[53]). Promising results were found on the physical functioning, social participation, and quality of life for older adults living in small scale home‑like facilities compared to those living in conventional nursing homes (Krier et al., 2023[54]). People with dementia displayed less aggressive behaviour in such settings and there was a lower use of antipsychotics which can have a significant impact on care costs (Verbeek et al., 2014[55]). Dementia villages and promoting people with dementia to live at home and at the community are important elements of a people centred approach. A study of an innovative dementia-friendly support in the community in Ireland showed that personalised care in the community resulted in lower costs than using residential care (O’Shea and Monaghan, 2016[56]).

5.4.4. Increasing labour productivity in the LTC sector

Another path to increasing the efficiency of LTC systems is by enhancing labour productivity within the sector. Currently, the LTC sector is highly labour-intensive. Many LTC services involve direct, hands-on care that cannot be easily automated or replaced by technology. Tasks such as bathing, feeding, and mobility assistance require a human touch and personal interaction, which limits potential productivity gains. Overcoming this limitation is crucial for increasing labour productivity in the LTC sector. Over the past decade, average labour productivity in the LTC sector across OECD countries has slightly declined, whereas the total economy experienced an annual growth rate of 1.5% (OECD, 2023[57]).

Decreasing the LTC workforce turnover

The LTC workforce is often underpaid and works in inadequate conditions (OECD, 2020[4]). Increasing basic pay to more competitive levels is a straightforward way to address these issues. Although this may initially raise the already high costs of LTC, lower turnover can lead to substantial savings, such as reduced recruitment and training costs, and higher productivity. The higher productivity stems from several factors, including improved job satisfaction, which enhances morale and motivation among staff; increased continuity of care, allowing caregivers to build stronger relationships with care recipients; and enhanced skills and experience, as caregivers accumulate more knowledge and proficiency, improving the quality and efficiency of care provided. These gains could potentially offset most, if not all, of the increased pay costs (Weller et al., 2020[58]).

Increasing training for LTC workforce

Previous OECD work has highlighted that LTC workforce is often inadequately trained while highlighting promising initiatives to provide more training associated with task delegation (OECD, 2020[4]). In home‑based settings, delegating tasks such as medication administration (e.g. pills, eye drops) from nurses to personal care workers can enhance efficiency by reducing unnecessary travel time and allowing more time and effort to be dedicated to caring for elderly individuals with complex needs. The Enhanced Home Care pilot programme in California demonstrated that additional training for personal care workers in areas such as medication management, mental health, and nutrition resulted in lower medication non-compliance rates and improved health outcomes (Osterman, 2017[59]). Similarly, evidence from Australia suggests that appropriately trained and supervised care workers can assist nurses with medicine management in home care settings, particularly for those at low risk of adverse medication errors (Lee et al., 2015[60]). Additionally, Portugal’s Active Ageing Competence Centre offers free training for both formal and informal caregivers, further underscoring the value of enhanced training. These findings highlight the potential benefits of better training in improving the efficiency of LTC services.

New technologies to boost productivity in the LTC sector

New technologies, especially robotic technologies and artificial intelligence (AI), offer substantial potential to alleviate the burden on LTC workers rather than replacing them (OECD, 2023[57]). These innovations can significantly reduce the strain of demanding tasks, allowing LTC workers to focus more on providing effective care. For instance, digital technologies such as sensors and tablets can streamline administrative tasks, co‑ordination, monitoring, and transport, thereby maximising the time workers can spend on direct caregiving.

Moreover, new technologies could improve the conditions of care recipients and prevent additional interventions by caregivers. For example, in Denmark, a digital training tool for physical activities at home (called “DigiRehab”) contributed to not only efficiently monitoring care recipients’ physical ability but also reducing their needs of home care (Healthcare Denmark, 2019[61]). Similarly, in Finland, the telecare scheme called “Remote Care” helped LTC workers reduce travel time (OECD, 2023[57]). As the prices of advanced equipment like robots decrease, augmenting productivity with these new technologies to reduce LTC workers’ strain should be prioritised.

Furthermore, AI-enhanced tools can facilitate independent living for older people, reducing the need for constant supervision and enabling LTC workers to manage their time more efficiently (Loveys et al., 2022[62]). For instance, AI technologies can be also employed to alleviate the burden of both formal and informal carers by managing medication regimens and systematically monitoring and recording health status of care recipients (Eurocarers, 2024[63]). Efficiency gains from these tools can be considerable, given that LTC workers tend to spend a significant amount of time on administrative tasks (NHS, 2019[64]). In Japan, for example, AI software is increasingly accepted to help LTC workers smoothly optimise travel plans to receive and drop off users for daycare and short-term institutional care. Additionally, the usage of AI is also considered or already implemented to avoid preventable harms in LTC settings. In particular, safety failures are widespread and research shows that more than 40% of hospital admissions due to falls in the LTC set-up are avoidable (de Bienassis, Llena-Nozal and Klazinga, 2020[65]). There is a case like Japan where the AI detection of falls helped reduce the burden of monitoring by LTC workers (OECD, 2023[57]). However, the overall evidence surrounding the effectiveness of AI (e.g. wearables) on avoiding falls is inconclusive at present and further development is to be expected (O’Connor et al., 2022[66]).

Notwithstanding the potential of these new technologies, investment in new technologies within the LTC sector remains limited. On average, IT investments in LTC across 12 OECD countries account for only 0‑3% during the period of 2014 to 2018 (OECD, 2023[57]). The high cost of advanced technologies, such as robots, is a significant barrier, with only 1% of LTC providers in Japan and the United Kingdom currently utilising them. Moreover, while cheaper technologies are being adopted more frequently, their implementation is hindered by concerns over privacy and data security, as well as a lack of awareness among LTC providers about available technologies. Additionally, the digital skills of LTC workers are often insufficient to effectively operate these new tools, further limiting their adoption.

For the successful integration of new technologies in LTC, several challenges must be addressed. Improving the digital skills of both LTC workers and older people is essential to ensure effective use of these technologies. Also, while AI-enhanced interventions show promise, more high-quality trials are needed to establish their effectiveness and support widespread implementation. In Japan, the Prefectural Conference for the Innovation of LTC Scenes and the Consultation Centre for Improving the Productivity of LTC are actively involved in the planning of digital skills training programmes for LTC workers and supporting care providers in introducing new technologies (MHLW, 2024[67]). By tackling these challenges, the LTC sector can better harness the potential of new technologies to enhance productivity and improve care outcomes.

5.4.5. Introducing sustainable pricing of LTC services

Prices have been used to respect the overall budget and redistribute resources for LTC among various providers. In the Netherlands, the national government sets a macro budget for all care financed through social LTC insurance for the coming year based using forecasting accounting for changes in wages, prices, demographics, and policies (Bakx, Schut and Wouterse, 2020[68]). The macro budget is then divided across the regional purchasing offices. The allocation of funds across regions is currently based on past trends. The regional purchasing office responsible for the procurement of care within their region comply with the lump-sum regional budget set by the government. This implies that regional purchasing offices must adjust prices and/or volume of the contracted care to fit the regional budget restrictions.

Spain relies on tariffs, rather than maximum prices, and co-payments decided at the regional level, within a national binding framework. In Spain, the regional Health Departments contract with both public and private providers in terms of number of services, quality and cost. In the case of public providers, the system is based on a contractual relationship between the financing body and the healthcare provider (Milstein, Mueller and Lorenzoni, 2021[69]). The central government sets the basic legislation that is common to all regions based on the recommendations from the Territorial Council. This includes minimum criteria for benefits and also reference costs of services. In many cases, tariffs and reference costs are static and based on historical values. The regions are free to set their own prices, but they have to finance the difference in case of higher costs.

Germany and France rely on a point system to set prices and to control spending. In Germany, each service has a number of points, which have a base value. Services are translated into points depending on the time intensity of the services provided and/or their complexity. Prices are negotiated individually on a regional or state level between a care setting, welfare organisations and LTC funds, whose enrolees contribute at least 5% of the residential home days (Pflegesatzverhandlungen) (Milstein, Mueller and Lorenzoni, 2021[69]). Residential homes can apply for negotiations on their care charges whenever they deem it necessary. Negotiations on care charges are limited to six weeks. If the parties fail to reach an agreement, an arbitration board decides. This board is composed of representatives of the LTCI funds (both public and private) and the residential home on equal terms, a nonpartisan chair and two non-partisan members. If they fail to reach an agreement, the State Ministry of Health makes the decision (Milstein, Mueller and Lorenzoni, 2021[69]). In France, the pricing method for nursing homes also use a point system for the medical care: the pricing method of care institutions is composed of the medical care package, the dependency care package and the accommodation fee (Or and Penneau, 2021[70]). The payment is calculated according to the average level of dependency for residents of the facility and the value of the departmental dependency level point fixed by the local council.

An interesting new development is the idea to link payments to quality and efficiency in so-called pay-for-performance schemes (P4P) but evidence so far on the potential impact of pay-for-performance and whether this can be cost-effective is mixed. In the United States, there has been experimentation with such P4P and several states adopted Medicaid-sponsored P4P programmes in nursing homes since the early 2000s. A study found, however, that although quality improved for three of the nine measures examined (use of physical restraints, pain control, and pressure sores), nursing home quality did not consistently improve in any of the states that implemented P4P. Likely, the incentives may have been too small to effectively motivate changes in performance (Werner, Konetzka and Polsky, 2013[71]). Similarly results from Japan were mixed with no evidence that P4P affects LTC outcomes and expenditures although, after P4P, care managers referred users whose care levels were more likely to improve to affiliated providers (Iizuka, Noguchi and Sugawara, 2017[72]).

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← 1. Own calculations for year 2018 based on OECD Income Distribution Database.

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