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date: 07 December 2019

Financing and Policy for Long-Term Care

Summary and Keywords

Long-term care (LTC) systems entitle frail and disabled people, who experience declines in physical and mental capacities, to quality care and support from an appropriately trained workforce and aim to preserve individual health and promote personal well-being for people of all ages. Myriad social factors pose significant challenges to LTC services and systems worldwide. Leading among these factors is the aging population—that is, the growing proportion of older people, the main recipients of LTC, in the population—and the implications not only for the health and social protection sectors, but almost all other segments of society. The number of elderly citizens has increased significantly in recent years in most countries and regions, and the pace of that growth is expected to accelerate in the forthcoming decades. The rapid demographic evolution has been accompanied by substantial social changes that have modified the traditional pattern of delivery LTC. Although families (and friends) still provide most of the help and care to relatives with functional limitations, changes in the population structure, such as weakened family ties, increased participation of women in the labor market, and withdrawal of early retirement policies, have resulted in a decrease in the provision of informal care. Thus, the growing demands for care, together with a lower potential supply of informal care, is likely to put pressure on the provision of formal care services in terms of both quantity and quality. Other related concerns include the sustainable financing of LTC services, which has declined significantly in recent years, and the pursuit of equity.

The current institutional background regarding LTC differs substantially across countries, but they all face similar challenges. Addressing these challenges requires a comprehensive approach that allows for the adoption of the “right” mix of policies between those aiming at informal care and those focusing on the provision and financing of formal LTC services.

Keywords: long-term care and insurance, old age, dependency, subsidies, tax deductions, formal and informal care, health economics


Many countries are facing consistent growth in the number and proportion of elderly people in their populations. This significant social transformation is likely to have implications not only for the health and social protection systems, but also for nearly all sectors of society (Christensen, Doblhammer, Rau, & Vaupel, 2009; European Commission, 2017).

Aging and longevity, and their impact on welfare systems, especially on healthcare and pensions, have shaped the research agenda of numerous demographers, sociologists, gerontologists, economists, and other experts for decades. LTC is defined as a range of services and assistance required by people with a reduced degree of functional capacity, physical or cognitive, and who depend for an extended period of time on help with basic activities of daily living or are in need of some permanent nursing care (Colombo, Llena-Nozal, Mercier, & Tjadens, 2011). In this sense, there are four major differences between LTC and acute medical care (Norton, 2000). First, LTC is required by people who suffer from chronic illness or disability, while medical care treats acute health problems. In addition, chronicity usually perpetuates over the life span and is associated to lasting, and sometime catastrophic, expenditures on both medical and LTC care. Second, institutional care is predominantly provided in for-profit facilities and faces excess demand, while hospitals are mainly managed by the public sector or by nonprofit organizations. Third, elderly individuals rely on informal care provided by family and friends to attend to their LTC needs, while medical care is provided by paid qualified professionals. Finally, health and LTC insurance plans differ in many aspects, such as coverage, participation rates, and copayments.

According to the Organisation for Economic Co-operation and Development (OECD), public spending on LTC, including healthcare and social services for those with chronic conditions who require continuing assistance, was on average 1.4% of GDP in 2014 (Fig. 1) and it is estimated to more than double by 2050 (Colombo & Mercier, 2012; OECD Health Statistics, 2017). The expected growth in LTC expenditures as a share of GDP and of public and private spending can be explained by the increasing demand for LTC services due to the aging population, the greater probability of survival to older age, and the decline in the supply of informal caregiving. The latter is closely related to some major social changes, such as new family structures, declining household size, increased prevalence of unstable partner relationships and lower marriage rates, greater geographical mobility that may hinder children in taking care of dependent parents, and higher female labor market participation (Costa-Font, Courbage, & Swartz, 2015; Pezzin & Steinberg Schone, 1999).

Financing and Policy for Long-Term CareClick to view larger

Figure 1. Public spending on long-term care (health and social components) in 2014 as a percentage of GDP.

Source: OECD Health Statistics (2017).

People of all ages may become dependent on LTC, but the risk of dependency is highest among the elderly (aged 65 and over). In 2016, 19.2% of the European Union population was aged 65 and over. Projections foresee a growing number and share not only of elderly persons but also of the very old (aged 85 and over), for whom the need for LTC is highest due to increased probability of developing chronic pathologies, comorbidities, or other impairing conditions.

The unprecedented recent demographic changes, understood as an increased life expectancy, are hypothesized to lead to higher morbidity and functional impairment rates. There are three approaches that provide conceptual framework to analyze the triad among aging, longevity, and disability (Graham, Blakely, David, Sporle, & Pearce, 2004). According to the theory of expansion of disability, improved medical treatments and prevention strategies add years of life to individuals with age-related conditions and disabilities at the end of life (Gruenberg, 1977; Kramer, 1980). On the contrary, the “compensation” of disability approach asserts that better treatment and prevention of diseases result in an increase in life-years free of impairments (Fries, 1980, 2003; Fries, Green, & Levine, 1989). Finally, the “dynamic equilibrium” hypothesis (Manton, 1982) combines the previous two scenarios and stipulates that the proportion of life span with serious disability remains stable or decreases, while the period lived with less severe functional limitations is prolonged. Nevertheless, empirical evidence fails to unequivocally support the theoretical argument that the burden of disease and disability significantly rises in aging societies (Colombo et al., 2011; Crimmins & Beltrán-Sánchez, 2010; Guzman-Castillo et al., 2017; Lafortune & Balestat, 2007; Lin, Beck, & Finch, 2016). Regardless of the inconclusiveness of empirical research on the trends of disability prevalence, the number of older people with care needs will perceptibly expand over the next decades, mainly as a consequence of the population’s aging, which comes with poorer health and will induce a positive shift in the demand for health and LTC care.

Substantial social changes have accompanied this rapid demographic evolution, which have modified the traditional pattern of delivery of LTC. Although families (and friends) still provide the majority of help and care to people with functional limitations, the changes in the population structure (aging population, combined with increased life expectancy and falling birth rates), weakened family ties, increased participation of women in the labor market, and withdrawal of early retirement policies, have resulted in a decrease in the provision of informal care, which is likely to put pressure on the demand for formal care services in terms of both quantity and quality (Siciliani, 2013). Other major public policy concerns include the sustainable financing of LTC services, which has declined significantly over the years following the 2008 economic crisis, and the pursuit of equity.

Provision of Long-Term Care

LTC lies on the boundary between health and social care. Some of the needs of dependent people, mainly those related to acute health problems, are better attended by healthcare providers, while others, stemming from some chronic conditions, can be more appropriately delivered in social care settings. The lack of consensus on who should bear the responsibility for the provision and financing of LTC, as well as the specific cultural and social traditions, has led to the development of diverse LTC systems across countries (Costa-Font, Karlsson, & Øien, 2016). Some countries dedicate a tiny fraction of their GDP to formal care, less than 1%, and rely heavily on informal provision of LTC services (e.g., Italy, Spain, Portugal). Others offer comprehensive public LTC coverage that accounts for over 3.5% of their GDP (e.g., Finland, The Netherlands, Sweden) (Colombo, Llena-Nozal, Mercier, & Tjadens, 2011; Grabowski, Norton, & Van Houtven, 2012; Karlsson, Mayhew, & Rickayzen, 2007; Muir, 2017). Related to these is the question of the interdependency between the LTC sector and acute care sector (Costa-Font & Costa-Font, 2011). According to Ansah et al. (2014), the relationship is dynamic and policy makers should account for it when implementing policies aimed at the LTC system directly, as these may significantly impact the healthcare sector as well. In line with this, Costa-Font, Jiménez-Martín, and Vilaplana-Prieto (2018) provide evidence on the causal impact of a policy change in caregiving affordability, related to dependency allowances and the reception of home care, on hospital admissions and length of stay in Spain.

In general, LTC comprises a broad spectrum of services required by persons with reduced functional capacity, both physical and cognitive. These services range from formal care provided at home (e.g., home help, meals on wheels, community nursing), in an institution (e.g., care centers, residential and nursing homes) or, increasingly, in supported housing settings (e.g., sheltered housing, assisted living, or some retirement communities) to informal care usually delivered by family (mainly spouses and children) and friends who are not getting paid for it (Knapp & Somani, 2009).

The balance between formal and informal care results in varying institutional settings across countries. Nevertheless, families (and friends) are the main providers of help and care to relatives with functional limitations (Grabowski, Norton, & Van Houtven, 2012; Karlsson, Mayhew, Plumb, & Rickayzen, 2006; Rodrigues et al., 2013). The majority of dependent adults of all ages prefer to receive LTC in their own homes if possible, or in sheltered housing with assistance services (Hajek, Wegener, Riedel-Heller, & König, 2017; Nishita, Wilber, Matsumoto, & Schnelle, 2008; Pinquart & Sörensen, 2002; Wolff, Kasper, & Shore, 2008). In addition, informal caregiving is strongly correlated to the availability and affordability of other types of LTC, which may act as substitutes or complements to unqualified and unpaid care provided by relatives (Bolin, Lindgren, & Lundborg, 2008a, 2008b; Bonsang, 2009; Costa-Font, Jiménez-Martín, & Vilaplana, 2017; Van Houtven & Norton, 2004, 2008).

There is no general consensus on whether formal and informal care are complements or substitutes when dealing with basic services. However, most studies agree that when more specialized assistance is required, both types of care are clearly complementary in nature. In such circumstances, qualified professionals take care of the more complex and demanding types of assistance, while relatives provide support in basic activities. In this complementary idea, it is very important that there are structures that facilitate communication, planning, coordination, and cooperation between both types of care for things such as mobility and transport (Leichsenring, 2012).

Bolin, Lindgren, and Lundborg (2008a) analyzed the degree of complementarity or substitutability between formal and informal LTC in Europe and whether the relationship differs across countries. The authors used data from the first wave of the Survey of Health, Ageing and Retirement in Europe (SHARE) corresponding to 2004, and estimated the utilization of different types of LTC and healthcare. The endogeneity of informal care was accounted for by estimating instrumental variable models. The main findings were that informal help and formal care provided in the household are substitutes, whereas if provided in healthcare settings, hospitals, or doctors’ offices, both types of LTC are complements. The interrelation between formal and informal care, however, is not unequivocal among different welfare regimes and social norms. Some evidence of the north-south gradient, explained by cultural and institutional differences across Europe, is reported.

Bonsang (2009) analyzed the impact of informal care provided by the children on the use of LTC among elderly parents in nine European countries. The authors estimated a two-part utilization model to assess the effect of informal care receipt on the demand for paid domestic assistance and nursing/personal care among those aged 65 and over. The data used in the analysis came from the first wave of SHARE. Instrumental variables techniques were applied to control for the potential endogeneity between formal and informal care. The results highlighted the complex relationship between the different types of LTC. Support by family members, who provide unskilled care, was found to act as a substitute to formal services for elderly people with a lower degree of disability. The need for qualified assistance increases with the burden of dependency; that is, for severely impaired elderly people, informal and formal care act as complements. Bonsang (2009) claims that the underlying assumption regarding the substitutability of both types of care is crucial in assessing the effectiveness of policies on the sustainability of LTC expenditures.

Igel, Brandt, Haberkern, and Szyclik (2009) studied intergenerational time transfers, differentiating between two support forms: help (less intensive support) and care activities (indispensable assistance). Help activities to parents and children depend on the characteristics and the opportunity structure (sufficient time available, good health status, low cost of forgone alternatives) of the provider of assistance, while care is determined by the needs of the receiver. Multilevel models of help and care were estimated. The data for the empirical analysis were drawn from the 2004 wave of SHARE and compared the situation in 11 European countries. The findings supported the “specialization hypothesis,” in which qualified professionals provide more demanding and essential care to the elderly than families, who give less intensive help. Differences among countries are attributed to country-specific cultural norms and institutional structures. The main policy implication of their research is that LTC provided by the state and the family should be considered complementary support sources.

Related to Igel, Brandt, Haberkern, and Szydlik (2009) are the works by Brandt, Haberkern, and Szydlik (2009) and Brandt (2013). The authors differentiated between help and care services provided by adult children to their parents in Europe and analyzed the main determinants of the use of one type of care or another. Both used data from SHARE and estimated logistic regression models of the utilization of each type of care (Brandt, Haberkern, & Szydlik, 2009) and multilevel models (Brandt, 2013) to account for distinct geographical distribution of informal care. The main conclusion, from a policy perspective, is that public and private LTC services encourage the provision of family help (“crowding in” effect), but tend to reduce more demanding types of informal care (“crowding out” effect), thus providing evidence to support the specialization theory between formal and family care. The authors discussed differences among countries, especially the north-south divide in Europe, and linked them to the generosity of the welfare state and societal norms.

Another study that aimed to elucidate the true relationship between formal and informal care for the dependent elderly in Europe is by Vilaplana, Jiménez-Martín, and García Gómez (2011). Employing data from SHARE 2004, the authors estimated bivariate probit models of the demand for LTC, controlling for institutional features of the varying LTC systems such as the responsibility of the state, the LTC coverage or the availability of allowances for the caregivers, and individuals’ demographic, socioeconomic, health, and environmental characteristics. A positive correlation between formal and informal care was found, meaning that, conditional on receiving care, a clear preference for a care mix is observed. There are clear differences in use of formal and informal care across countries in Europe. The probability of receiving any type of LTC is shown to be higher in countries where families are legally responsible for providing care to their dependent elderly and in the presence of a greater provision of institutionalized care. Vilaplana, Jiménez-Martín, and García Gómez (2011) claimed that taking into account the caregivers’ satisfaction and providing assistance to those who give informal care is essential for the adequate design of LTC policies under tight budgetary constraints.

Bakx, De Meijer, Schut, and Van Doorslaer (2015) studied the impact of country-specific institutional characteristics on the use of formal and informal care in two countries with universal public LTC insurance, The Netherlands and Germany. Their findings demonstrate that the choice is significantly determined not only by the population characteristics, but also by the features of the LTC system such as eligibility rules and coverage generosity and, indirectly, social preferences.

The investigation of LTC utilization in Europe, distinguishing between formal care and informal support, was the aim of a study by Badia and Brau (2014). The reciprocal interaction between the two types of care was estimated with a bivariate two-part model. A common latent factor approach was used to account for endogeneity and unobserved heterogeneity. To assess the impact of age and disability on home care utilization, a proximity to death (PtD) measure was constructed. The PtD indicators are documented to better capture health deterioration and increased expenditures and demand for healthcare services at the end of life than age per se (Weaver, Norton, & Spector, 2009; for a review of the studies, see Payne, Laporte, Deber, & Coyte, 2007). Balia and Brau (2014) showed that formal and informal care are perfect substitutes in basic assistance activities, but become complementary when more professional and skilled services are required. However, given that the estimated average partial effects are negligible, it is claimed that there is no need to focus much attention on the substitutability-complementarity binomial between formal and informal care. What is important from a policy point of view is that incentives for informal support are not very likely to significantly alter demand for LTC services in Europe (Balia & Brau, 2014). Therefore, the effectiveness of policies incentivizing the use of informal care as a cost-containment instrument should be seriously reconsidered.

The Costs of Informal Caregiving

Given the predominant role of informal care in the LTC sector in many societies, many researchers have analyzed the direct and indirect costs associated with informal caregiving, such as lost days of work (Reid, Stajduhar, & Chappell, 2010; Ugreninov, 2013), forgone career opportunities (Bolin, Lindgren, & Kundborg, 2008b), and employment (Grabowski, Norton, & Van Houtven, 2012; Meng, 2012; Michaud, Heitmueller, & Nazarov, 2010; Moscarola, 2010; Nguyen & Connelly, 2014; Van Houtven, Coe, & Skira, 2013). In addition to their economic well-being (Arno, Levine, & Memmott, 1999), the physical but mainly mental health of caregivers may worsen as a consequence of the caring activities (Bobinac, Van Exel, Rutten, & Brouwer, 2010; Kaschowitz & Brandt, 2016; Pinquart & Sörensen, 2003, 2007; Schulz, O’Brien, Bookwala, & Fleissner, 1995). Through the adverse health impacts, caregiving may also increase carers’ need for and use of healthcare (Coe & Van Houtven, 2009; Do, Norton, Stearns, & Van Houtven, 2015).

By its nature, informal care is not exchanged in the market and has no price attached to it. Nevertheless, there is a line of research that attempts to assess its value (Van den Berg, Brouwer, & Koopmanschap, 2004). The most common approaches for valuing informal care are based on the opportunity cost of time employed in caregiving instead of using it in the labor market (Van den Berg & Spauwen, 2006), on the market value of alternative care options (Arno, Levine, & Memmott, 1999), or on estimates of the monetary compensation for providing an additional hour of care, keeping caregiver’s well-being constant (Van den Berg & Ferrer-i-Carbonell, 2007).

Bauer and Sousa-Poza (2015) reviewed the research on the effect of informal care in three different domains of the carer’s life: employment, psychological health, and family dynamics and living arrangements. The main conclusion was that informal caregiving has adverse consequences on all the domains of the lives of those providing informal assistance. Moreover, caregiving imposes a higher toll on women than on men. The great heterogeneity in informal caregiving arrangements calls for flexible policies that can adjust to adequately meet the carer’s needs.

In a comparative study, Wagner and Brandt (2017) tried to determine whether and how regional formal LTC provisions impact the well-being of spousal caregivers across European countries. The authors showed that spousal caregivers’ well-being, proxied by life satisfaction, loneliness, and depression, was positively related to the availability of public LTC services. In terms of future policies, both formal care supply and support for informal caregivers should be targeted to prevent adverse health and socioeconomic consequences for those providing care.

There is also evidence on the association between the provision of LTC services and the caregiver’s quality of life. Verbakel (2014) compared 18 European countries and observed that there is less difference in well-being between informal carers and noncarers in countries with more generous LTC systems. However, the findings vary across countries. Policy instruments designed to support informal carers do not significantly improve well-being, but strong country-level family norms are shown to reduce the negative consequences from caregiving.

Unmet Need and Quality

As previously mentioned, people with LTC needs may receive care from a variety of sources. Unfortunately, not all dependent elderly have access to or can afford to pay for formal care and some may not be able to count on informal support either. In such circumstances, LTC will not be met and this may have a devastating effect on an elderly person’s health, quality of life, and well-being. In addition, many people may perceive that the existing provision of health and social care are insufficient to cover their LTC needs (Hughes, Conrad, Manheim, & Edelman, 1988; Komisar, Judith, & Judith, 2005; Williams & Rowland, 1997). Hence, unmet need for LTC services can be understood as subjective and objective perceptions or between normative need, a person’s or group’s felt need, and technical need.

The empirical evidence on unmet LTC needs is still not abundant, but it is steadily growing. For example, Yen et al. (2014) attempted to determine whether LTC policy in Taiwan met the needs of people with disabilities, as those impaired have priority in getting LTC insurance. The authors compared the functional status of three disability groups and investigated the coverage provided by the planned LTC insurance in the country. People with physical or sensory disabilities exhibit the most drastic differences in the domain of daily living, and people with intellectual disabilities are found to present major variations in the cognitive domain. After matching the planned coverage services, the authors showed that the planned LTC insurance did not meet the diverse needs of people with disabilities. In particular, social participation and a sense of security and satisfaction regarding the psychological aspects of having a disability must be considered in LTC insurance policies.

Using representative data on the noninstitutionalized disabled population in Spain, García Gómez, Hernandez, Jimenez, and Oliva (2015) analyzed the determinants of several LTC services and unmet need. The horizontal inequity was measured and unmet need proxied by both self-reported and objective indicators. After controlling for a large set of need variables, the authors found evidence of horizontal inequity in the distribution of use and unmet need for LTC services. Namely, formal care was disproportionally concentrated among those who are better off, while pro-poor inequity in intensive informal care was found. Regarding the unmet LTC needs, the objective indicator considered in the analysis revealed a greater pro-poor inequity compared to more subjective measures of unmet needs. Finally, the use of formal LTC services was unequally distributed among the better-off individuals with a major degree of disability, the only group with universal LTC coverage.

Using national panel data from the Chinese Longitudinal Healthy Longevity Survey, Zhu (2015) explored the determinants of the three-year mortality rate among elderly people who require LTC. Exponential parametric hazard models were estimated to assess the impact of unmet need on mortality. After controlling for demographic characteristics, dependent elderly with unmet needs showed an approximately 10% higher risk of mortality compared to those whose LTC needs were appropriately met. Some interesting differences in the determining factors between urban and rural settings were also shown. Among the elderly, women and urban dwellers experience higher risks of mortality.

Gu and Vlosky (2008), Zhen, Feng, and Gu (2015) and, more specifically, Li and Otani (2018) also studied the Chinese LTC system. They discussed challenges and provided recommendations in terms of financing. Special emphasis was put on the local governments’ financial capacity to support LTC services by comparing the expense level to fiscal revenue. Population aging is expected to double LTC expenses by 2030. Therefore, the authors pointed to the need to establish an LTC insurance system that will allow distribution of the financial responsibility for LTC, thus far borne exclusively by individuals and families, among the government, individuals, and families. Moreover, with the LTC reforms adopted between 2012 and 2016 and implemented primarily by local governments in China, the authors believe that the central government should bear some of the fiscal responsibility by conducting fiscal transfers to partially support undeveloped regions that are establishing an LTC system.

All these findings have important implications for policy makers because socioeconomic status is shown to play a determining role in shaping unmet needs among the elderly, and especially, among the oldest old. Therefore, providing financial help or some insurance coverage may help to ensure that the LTC needs of the oldest elderly are met.

Besides studies on unmet need, another less explored strand of research analyzes the quality of LTC services. Many studies have tried to explain the low quality of nursing home services, especially in the context of the United States. The degree of public financing generosity, supply side factors, information asymmetries, and macroeconomic environment are found to determine variations in nursing home services quality (Grabowski, 2001, 2004; Grabowski, Angelelli, & Mor, 2004).

Main concerns regarding quality of care are related to how to measure it, how to improve it, and how to ensure it through appropriately designed regulations (Knapp & Somani, 2009). Challenges in measurement are related to the type of care. For instance, informal care quality is very difficult to assess, as is the quality of formal care provided to severely mentally impaired individuals. Existing evidence points to low wages and high turnover among LTC workers as the main hurdles to ameliorating service quality.

Financing Long-Term Care

Public expenditures on LTC (as a percentage of GDP) significantly differ across countries and are quite low overall as compared to public spending on healthcare or other age-related social instruments (such as old-age pensions). Population aging in combination with important social changes will undoubtedly increase the need and demand for healthcare and LTC in the coming years. This, in turn, will raise serious concerns about the future and sustainability of financing LTC.

The alternative to public protection against LTC costs is the reliance on private sources, such as LTC insurance, precautionary savings, or the use of housing equity (Costa-Font, Courbage, & Swartz, 2015). Even if the onset and length of old-age dependency is quite uncertain (Barr, 2010), the objective probability of being in need for LTC and of having to pay extremely high LTC costs steeply increases with age (Frank, 2012; Kemper, Komisar, & Alexhih, 2005). Nevertheless, investment in private LTC insurance is generally not very common. This myopia in individuals’ perceptions of the risk (Cremer & Roeder, 2013) may result in catastrophic LTC costs, from an individual’s standpoint, if public social support is not available. Estimates for the lifetime cost of LTC in England can rise to EUR 27,000. LTC costs are considerably higher for women and for those most in need (Forder & Fernández, 2009). Other countries such as China show similar trends (Li & Otani, 2018). In the United States, LTC costs for elderly dependents are found to amount to more than USD 100,000 per year (Kemper, Komisar, & Alecxih, 2005).

Table 1 shows the main implications on equity and efficiency of the several financing models for LTC. There is no model that is always preferred to any other. In this regard, the main sources of LTC financing include out-of-pocket payments, LTC insurance (social or private), and subsidization of formal and informal LTC from general tax revenue. These models differ according to funding balance, risk pooling, and government involvement. All financing systems are based on redistribution schemes over the life cycle, such as payments to LTC accounts during working age, taxes, or social insurance contributions.

Table 1. Implications of Financing Models for Institutional Long-Term Care



Out-of-pocket payments

Benefits depend on individuals’ needs but copayments are required

Tax-based support from general revenue

Vulnerable to budget cuts

Social insurance

Better risk sharing but coverage may be restricted

Source: Authors’ elaboration based on Knapp and Somani (2009) and Yang, He, Fang, and Mossialos (2016).

The literature on financing LTC is quite abundant. For example, Costa‐Font, Courbage, and Zweifel (2015) examined the heterogeneity in the public financing of LTC and the wide range of instruments in place to finance LTC services. They distinguished and classified the institutional responses to the need for LTC financing as ex ante and ex post. Although ex ante and ex post mechanisms coexist in most advanced economies, and despite the fact that instruments considerably vary across countries, in general, each acts as a substitute for the other. Most countries recognize that there are trade-offs between forms of ex ante financial support against the risk of going into dependency in the future and the ex post financial tools that aim to provide care to those already in need but who cannot afford to pay for it. Expenditure estimates indicate that the public financing of LTC is highly sensitive to a country’s income, the aging profile of the population, and the availability of informal caregiving.

Costa‐Font, Jiménez-Martin, and Vilaplana-Prieto (2018) have argued that institutional responses to the necessity to ensure ex ante the financial risks of needing LTC are insufficiently developed. On the contrary, policy makers mainly focus on the mechanisms to finance LTC ex post, designing measures aimed to support public LTC provision and family carers. Both ex ante and ex post types of financing instruments are found to present weaknesses that force policy makers to face uneasy dilemmas. The latter are confronted in various ways, causing a great deal of cross-country heterogeneity in the financing and provision of LTC services.

Wouterse and Smid (2017) focused on the effects of rapid LTC spending growth on fiscal sustainability. Rising LTC costs threaten the financial health of Dutch public finances, and therefore, additional public revenues are needed to cover the expected future increase in spending. Wouterse and Smid (2017) claim that future increases in LTC expenditures will be explained by population aging and wage increases as well as by factors such as higher demand for higher-quality care and lower growth in labor productivity. They presented four alternative policies to finance the anticipated additional growth in LTC spending that differ in the distribution of costs over time and age cohorts. A generational accounting approach was followed to assess the impact of each of the four financing mechanisms on intergenerational redistribution. The effects on savings and labor supply were also accounted for in the model. The authors found a relatively large intergenerational redistribution of lifetime net benefits for a pay-as-you-go system and for an immediate one-time increase of the premium rate, while a cohort-specific savings system or a pensioner tax would have relatively small intergenerational effects. Labor supply and private consumption decrease in all four financing scenarios, although the effects vary in size and timing.

Future Directions and Challenges

The timing of the onset of LTC needs and their use requires further attention, as such analysis might reveal whether more disadvantaged individuals delay the use of formal care or decide not to use it at all (Bakx, De Meijer, Schut, & van Doorslaer, 2015).

Although there are some studies on the interrelation between LTC and healthcare, the topic still offers many possibilities for future research. For example, does the universality of the access to healthcare lead to an increased use of medical services that are free at the point of delivery or require a low copayment as a substitute of LTC services, which are considerably more expensive and mainly financed out-of-pocket?

Additional research is also needed on the political economy of LTC care. Nuscheler and Roeder (2013) developed a two-dimensional model to determine the socially desirable set of income distribution and public provision and financing of LTC. The authors showed that to balance the conflicting interests of families with disabled parents, favoring comprehensive public provision and financing of care, and of those with healthy parents who oppose public involvement, informal care should be provided for the equilibrium to exist. The model explains the negative association between income inequality and LTC financing that has been found by empirical research and allows predictions about how the organization and financing of LTC might be affected by demographic changes.

Maarse and Jeurissen (2016) analyzed the 2015 major LTC reforms in the Netherlands, which attempted to reign in expenditure growth to safeguard the fiscal sustainability of LTC. Furthermore, they demonstrated the attention paid to the political decision-making process and the politics of implementation and evaluation. Perceptions of the effects of the reform widely differ: positive views alternate with major critics. Though the reform is radical in various aspects, LTC provision will remain publicly funded for the most part, and individuals in need of residential care will be covered by the existing statutory health insurance scheme.

The analysis of institutionalized care is another niche in the literature on LTC. Kim and Lim (2015) are among the few to discuss the issue. The authors used administrative data from South Korea to estimate the first-year impact of subsidies for formal home and institutional care on informal care use and medical expenditures. Their main finding was that the benefits of subsidized home and facility care are heterogeneous across physical function level, and that setting policy accordingly has the potential to dramatically reduce medical expenses. They also found that formal LTC is a substitute for informal care at the intensive margin (i.e., the days spent in institutional care), but did not find such evidence at the extensive margin (i.e., the probability of receiving informal care by a child and of independent living). Unfortunately, there are no internationally comparable data available on costs and access to social care (LTC included) to perform cross-country analyses. Therefore, the successful policy initiatives that some governments have adopted to ensure fair access to affordable social care are difficult to assess from a comparative perspective and it is even more complex to define LTC policy recommendations applicable to heterogeneous welfare systems.

LTC expenditures, if needed, are likely among the major financial risks faced by the elderly, especially in welfare settings that are mainly dependent on private out-of-pocket payments or informal care. Yet, very few elderly people voluntarily insure against catastrophic LTC costs, even among the affluent (Gottlieb & Mitchell, 2015). Disentangling the causes for the low participation rates of private LTC insurance requires further analysis. For those without insurance, future LTC costs alternatively may be covered by savings. However, the evidence on the relationship between health-related expenditures and the savings behavior of the elderly is scant (De Nardi, French, & Jones, 2010; Dobrescu, 2015; Kopecky & Koreshkova, 2014). Further research on the impact of LTC on elderly people’s savings behaviors, which should also respond to another major concern, namely, old-age pensions, is needed.


The authors acknowledge financial support from the Fundación Ramón Areces (project 162PR19693); the European Commission through the Seventh Framework Program (project AGENTA No. 613247); the Spanish Ministry of Economics and Competitiveness (project ECO2016-78991-R), and the Catalan Government (Xarxa de Referència en Economia i Polítiques Públiques). The authors are especially grateful to Elisenda Orteu Irrure for her valuable research assistance.

Further Reading

Atella, V., Belotti, F., Carrino, L., & Piano Mortari, A. (2017). The future of long term care in Europe: An investigation using a dynamic microsimulation model (CEIS Working Paper No. 405). Retrieved from this resource:

Barczyk, D., & Kredler, M. (2018). Evaluating long-term care policy options, taking the family seriously. Review of Economic Studies, 85(2), 766–809.Find this resource:

Braun, A., Kopecky, K. A., & Koreshkova, T. (2017). Old, frail, and uninsured: Accounting for puzzles in the U.S. long-term care insurance market (Working Paper 2017-3b). Atlanta, GA: Federal Reserve Bank of Atlanta.Find this resource:

Braun, A., Kopecky, K. A., & Koreshkova, T. (2017). Old, sick, alone and poor: A welfare analysis of old-age social insurance programs. Review of Economic Studies, 84, 580–612.Find this resource:

Brown, J. R., & Finkelstein, A. (2007). Why is the market for long-term care insurance so small? Journal of Public Economics, 91(10), 1967–1991.Find this resource:

Byrne, D., Goeree, M. S., Hiedemann, B., & Stern, S. (2009). Formal home health care, informal care, and family decision making. International Economic Review, 50, 1205–1242.Find this resource:

Carrino, L., & Orso, C. (2014). Eligibility and inclusiveness of long-term care institutional frameworks in Europe: A cross-country comparison (Research Paper No. 28/WP/2014). Venice, Italy: University Ca’ Foscari of Venice, Dept. of Economics. Retrieved from

Costa-Font, J. (2010). Family ties and the crowding out of long-term care insurance. Oxford Review of Economic Policy, 26(4), 691–712.Find this resource:

Da Riot, B., & Le Bihan, B. (2010). Similar and yet so different: Cash-for-care in six European countries’ long-term care policies. Milbank Quarterly, 88(3), 286–309.Find this resource:

de Meijer, C., Koopmanschap, M., d’ Uva, T. B., & van Doorslaer, E. (2011). Determinants of long-term care spending: Age, time to death or disability? Journal of Health Economics, 30(2), 425–438.Find this resource:

De Nardi, M., French, E., & Jones, J. B. (2016). Medicaid insurance in old age. American Economic Review, 106(11), 3480–3520.Find this resource:

Jiménez-Martín, S., & Prieto, C. V. (2012). The trade-off between formal and informal care in Spain. European Journal of Health Economics, 13(4), 461–490.Find this resource:

Jiménez-Martín, S., & Vilaplana Prieto, C. (2015). Do Spanish informal caregivers come to the rescue of dependent people with formal care unmet needs? Applied Economic Perspectives and Policy, 37(2), 243–259.Find this resource:

Kalwij, A., Pasini, G., & Wu, M. (2014). Home care for the elderly: The role of relatives, friends and neighbors. Review of Economics of the Household, 12(2), 379–404.Find this resource:

Løken, K. V., Lundberg, S., & Riise, J. (2017). Lifting the burden: Formal care of the elderly and labor supply of adult children. Journal of Human Resources, 52(1), 247–271.Find this resource:

Mosca, I., van der Wees, P. J., Mot, E. S., Wammes, J. J. G., & Jeurissen, P. P. T. (2017). Sustainability of long-term care: Puzzling tasks ahead for policy-makers. International Journal of Health Policy and Management, 6(4), 195–205.Find this resource:

Pfau-Effinger, B. (2014). New policies for caring family members in European welfare states. Cuadernos de Relaciones Laborales, 32(1), 33–48.Find this resource:


Ansah, J. P., Eberlein, R. L., Love, S. R., Bautista, M. A., Thompson, J. P., Malhotra, R., & Matchar, D. B. (2014). Implications of long-term care capacity response policies for an aging population: A simulation analysis. Health Policy, 116(1), 105–113.Find this resource:

Arno, P. S., Levine, C., & Memmott, M. M. (1999). The economic value of informal caregiving. Health Affairs, 18, 182–188.Find this resource:

Bakx, P., De Meijer, C., Schut, F., & Van Doorslaer, E. (2015). Who cares? The influence of public long-term care insurance. Health Economics, 24, 631–643.Find this resource:

Balia, S., & Brau, R. (2014). A country for old men? Long-term care utilization in Europe. Health Economics, 23(10), 1185–1212.Find this resource:

Barr, N. (2010). Long-term care: A suitable case for social insurance. Social Policy and Administration, 44(4), 359–374.Find this resource:

Bauer, J. M., & Sousa-Poza, A. (2015) Impacts of informal caregiving on caregiver employment, health, and family. Journal of Population Ageing, 8(3), 113–145.Find this resource:

Bobinac, A., Van Exel, N. J. A., Rutten, F. F. H., & Brouwer, W. B. F. (2010). Caring for and caring about: Disentangling the caregiving effect and the family effect. Journal of Health Economics, 29, 549–556.Find this resource:

Bolin, K., Lindgren, B., & Lundborg, B. (2008a). Informal and formal care among single-living elderly in Europe. Health Economics, 17(3), 393–409.Find this resource:

Bolin, K., Lindgren, B., & Lundborg, B. (2008b). Your next of kin or your own career? caring and working among the 50+ of Europe. Journal of Health Economics, 17(3), 393–409.Find this resource:

Bonsang, E. (2009). Does informal care from children to their elderly parents substitute for formal care in Europe? Journal of Health Economics, 28(1), 143–154.Find this resource:

Brandt, M. (2013). Intergenerational help and public assistance in Europe. A case of specialization? Journal of European Societies, 15, 26–56.Find this resource:

Brandt, M., Haberkern, K., & Szydlik, M. (2009). Intergenerational help and care in Europe. European Sociological Review, 25(5), 585–601.Find this resource:

Carrera, F., Pavolini, E., Ranci, C., & Sabbatini, A. (2013). Long-term care systems in comparative perspective. In C. Ranci & E. Pavolini (Eds.), Reforms in long-term care policies in Europe: Investigating institutional change and social impacts (pp. 23–52). New York, NY: Springer.Find this resource:

Christensen, K., Doblhammer, G., Rau, R., & Vaupel, J. W. (2009). Ageing populations: The challenges ahead. Lancet, 374(9696), 1196–1208.Find this resource:

Coe, N. B., & Van Houtven, C. H. (2009). Caring for Mom and neglecting yourself? The health effects of caring for an elderly parent. Health Economics, 18, 991–1010.Find this resource:

Colombo, F., Llena-Nozal, A., Mercier, J., & Tjadens, F. (2011). Help wanted? Providing and paying for long-term care. Paris, France: Organisation for Economic Co-operation and Development.Find this resource:

Colombo, F., & Mercier, J. (2012). Help wanted? Fair and sustainable financing of long-term care services. Applied Economic Perspectives and Policy, 34(2), 316–332.Find this resource:

Costa-Font, J., & Costa-Font, M. (2011). Explaining optimistic old age disability and longevity expectations. Social Indicators Research, 104(3), 533–544.Find this resource:

Costa-Font, J., Courbage, C., & Swartz, K. (2015). Financing long-term care: Ex ante, ex post or both? Health Economics, 24(Suppl. 1), 45–57.Find this resource:

Costa-Font, J., Courbage, C., & Zweifel, P. (2017). Policy dilemmas in financing long-term care in Europe. Global Policy, 8(S2), 38–45.Find this resource:

Costa-Font, J., Jiménez-Martín, S., & Vilaplana, C. (2017). Thinking of incentivizing care? The effect of demand subsidies on informal caregiving and intergenerational transfers. CESifo Working Paper Series No. 6124. Retrieved from this resource:

Costa-Font, J., Jiménez-Martín, S., & Vilaplana, C. (2018). Does long-term care subsidization reduce hospital admissions and utilization? Journal of Health Economics, 56, 43–66.Find this resource:

Costa-Font, J., Karlsson, M., & Øien, H. (2016). Careful in the crisis? Determinants of older people’s informal care receipt in crisis-struck European countries. Health Economics, 25(Suppl. 2), 25–42.Find this resource:

Cremer, H., & Roeder, K. (2013). Long-term care policy, myopia and redistribution. Journal of Public Economics, 108, 33–43.Find this resource:

Crimmins, E. M., & Beltrán-Sánchez, H. (2010). Mortality and morbidity trends: Is there compression of morbidity? Journals of Gerontology, Series B: Psychological Sciences and Social Sciences, 66, 75–86.Find this resource:

De Nardi, M., French, E., & Jones, J. B. (2010). Why do the elderly save? The role of medical expenses. Journal of Political Economy, 118(1), 39–75.Find this resource:

Do, Y. K., Norton, E. C., Stearns, S. C., & Van Houtven, C. H. (2015). Informal care and caregiver’s health. Health Economics, 24(2), 224–237.Find this resource:

Dobrescu, L. I. (2015). To love or to pay savings and health care in older age. Journal of Human Resources, 50(1), 254–299.Find this resource:

European Commission (2017). The 2018 ageing report: Underlying assumptions and projection methodologies (European Economy Institutional Paper 065). Brussels, Belgium: DG ECFIN and the Economic Policy Committee (AWG). Retrieved from this resource:

Forder, J., & Fernández, J. L. (2009). Analysing the costs and benefits of social care funding arrangements in England (Discussion Paper 2644). London, England: Personal Social Services Research Unit.Find this resource:

Frank, R. (2012). Long-term care financing in the United States: Sources and institutions. Applied Economic Perspective Policy, 34(2), 333–345.Find this resource:

Fries, J. F. (1980). Aging, natural death and the compression of morbidity. New England Journal of Medicine, 303, 130–135.Find this resource:

Fries, J. F. (2003). Measuring and monitoring success in compressing morbidity. Annals of Internal Medicine, 139, 455–459.Find this resource:

Fries, J. F., Green, L. W., & Levine, S. (1989). Health promotion and the compression of morbidity. Lancet, 1(8636), 481–483.Find this resource:

García Gomez, P., Hernandez, C., Jimenez, D., & Oliva, J. (2015). Inequity in long-term care use and unmet need: Two sides of the same coin. Journal of Health Economics, 39, 147–158.Find this resource:

Gottlieb, D., & Mitchell, O. S. (2015). Narrow framing and long-term care insurance (Working paper No. 21048). Cambridge, MA: National Bureau of Economic Research. Retrieved from this resource:

Grabowski, D. C. (2001). Medicaid reimbursement and quality of nursing home care. Journal of Health Economics, 20, 549–569.Find this resource:

Grabowski, D. C. (2004). A longitudinal study of Medicaid payment, private-pay price and nursing home quality. International Journal of Health Care Finance and Economics, 4, 5–26.Find this resource:

Grabowski, D. C., Angelelli, J. J., & Mor, V. (2004). Medicaid payment and risk adjusted nursing home quality measures. Health Affairs, 23(5), 243–252.Find this resource:

Grabowski, D. C., Norton, E. C., & Van Houtven, C. H. (2012). Informal care. In A. Jones (Ed.), The Elgar Companion to Health Economics (2nd ed.). Cheltenham, UK: Edward Elgar.Find this resource:

Graham, P., Blakely, T., David, P., Sporle, A., & Pearce, N. (2004). Compensation, expansion, or dynamic equilibrium? The evolution of health expectancy in New Zealand. Journal of Epidemiology and Community Health, 58(8), 659–666.Find this resource:

Gruenberg, E. M. (1977). The failure of success. Milbank Quarterly, 55, 3–24.Find this resource:

Gu, D., & Vlosky, D. A. (2008). Long-term care needs and related issues in China. In J. B. Garner & T. C. Christiansen (Eds.), Social Sciences in Health Care and Medicine (pp. 52–84). Hauppauge, NY: Nova Science Publishers.Find this resource:

Guzman-Castillo, M., Ahmadi-Abhari, S., Bandosz, P., Capewell, S., Steptoe, A., Singh-Manoux, A. . . . & O’Flaherty, M. (2017). Forecasted trends in disability and life expectancy in England and Wales up to 2025: A modelling study. Lancet Public Health, 2, e307–e313.Find this resource:

Hajek, A., Lehnert, T., Wegener, A., Riedel-Heller, S. G., & König, H-H. (2017). Factors associated with preferences for long-term care settings in old age: Evidence from a population-based survey in Germany. BMC Health Services Research, 17, 156.Find this resource:

Hughes, S. L., Conrad, K. J., Manheim, L. M., & Edelman, P. L. (1988). Impact of long-term home care on mortality, functional status and unmet needs. Health Services Research, 23, 269–294.Find this resource:

Igel, C., Brandt, M., Haberkern, K., & Szydlik, M. (2009). Specialization between family and state intergenerational time transfers in Western Europe. Journal of Comparative Family Studies, 40(2), 203–223.Find this resource:

Karlsson, M., Mayhew, L., Plumb, R., & Rickayzen, B. (2006). Future costs for long-term care: Cost projections for long-term care for older people in the United Kingdom. Health Policy, 75(2), 187–213.Find this resource:

Karlsson, M., Mayhew, L., & Rickayzen, B. (2007). Long-term care financing in four OECD countries: Fiscal burden and distributive effects. Health Policy, 80(1), 107–134.Find this resource:

Kaschowitz, J., & Brandt, M. (2016). Health effects of informal caregiving across Europe: A longitudinal approach. Social Science and Medicine, 173, 72–80.Find this resource:

Kemper, P., Komisar, H., & Alecxih, L. (2005). Long-term care over an uncertain future: What can current retirees expect? Inquiry, 42(4), 335–350.Find this resource:

Kim, H. B., & Lim, W. (2015). Long-term care insurance, informal care, and medical expenditures. Journal of Public Economics, 125, 128–142.Find this resource:

Komisar, H. L., Judith, F., & Judith, K. (2005). Unmet long-term care needs: An analysis of Medicare-Medicaid dual eligible. Inquiry, 42(2), 171–182.Find this resource:

Kopecky, K. A., & Koreshkova, T. (2014). The impact of medical and nursing home expenses on savings. American Economic Journal: Macroeconomics, 6(3), 29–72.Find this resource:

Knapp, M., & Somani, A. (2009). Long-term care, organization and financing. In G. Carrin, K. Buse, K. Heggenhougen, & St. R. Quah (Eds.), Health systems policy, finance, and organization (pp. 133–141). London, England: Academic Press.Find this resource:

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Leichsenring, K. (2012). Integrated care for older people in Europe: Latest trends and perceptions. International Journal of Integrated Care, 12, e7.Find this resource:

Li, F., & Otani, J. (2018). Financing elderly people’s long‐term care needs: Evidence from China. International Journal of Health Planning and Management.Find this resource:

Lin, S-F., Beck, A. N., & Finch, B. K. (2016). The dynamic contribution of chronic conditions to temporal trends in disability among US adults. Disability and Health Journal, 9, 332–340.Find this resource:

Maarse, J. H., & Jeurissen, P. P. (2016). The policy and politics of the 2015 long-term care reform in the Netherlands. Health Policy, 120(3), 241–245.Find this resource:

Manton, K. G. (1982). Changing concepts of morbidity and mortality in the elderly population. Milbank Quarterly, 60, 183–244.Find this resource:

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Moscarola, F. C. (2010). Informal caregiving and women’s work choices: Lessons from the Netherlands. Labour, 24(1), 93–105.Find this resource:

Muir, T. (2017). Measuring social protection for long-term care. OECD Health Working Papers No. 93. OECD Publishing, Paris.Find this resource:

Nguyen, H. T., & Connelly L. B. (2014). The effect of unpaid caregiving intensity on labour force participation: Results from a multinomial endogenous treatment model. Social Science and Medicine, 100, 115–122.Find this resource:

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Norton, E. C. (2000). Long-term care. In A. J. Culyer & J. P. Newhouse (Eds.), Handbook of health economics (pp. 955–988). Amsterdam, The Netherlands: Elsevier.Find this resource:

Nuscheler, R., & Roeder, K. (2013). The political economy of long-term care. European Economic Review, 62, 154–173.Find this resource:

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Payne, G., Laporte, A., Deber, R., & Coyte, P. C. (2007). Counting backward to health care’s future: Using time-to-death modeling to identify changes in end-of-life morbidity and the impact of aging on health care expenditures. Milbank Quarterly, 85, 213–257.Find this resource:

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Pinquart, M., & Sörensen, S. (2007). Correlates of physical health of informal caregivers: A meta-analysis. Journals of Gerontology Series B: Psychological Sciences and Social Sciences, 62, 126–137.Find this resource:

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Van den Berg, B., Brouwer, W. B. F., & Koopmanschap, M. A. (2004). Economic valuation of informal care: An overview of methods and applications. European Journal of Health Economics, 5(1), 36–45.Find this resource:

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Van den Berg, B., & Spauwen, P. (2006). Measurement of informal care: An empirical study into the valid measurement of time spent on informal caregiving. Health Economics, 15(5), 447–460.Find this resource:

Van Houtven, C. H., Coe, N. B., & Skira, M. M. (2013). The effect of informal care on work and wages. Journal of Health Economics, 32(1), 240–252.Find this resource:

Van Houtven, C. H., & Norton, E. C. (2004). Informal care and health care use of older adults. Journal of Health Economics, 23(6), 115–128.Find this resource:

Van Houtven, C. H., & Norton, E. C. (2008). Informal care and Medicaid expenditures: Testing for heterogeneous treatment effects. Journal of Health Economics, 27(1), 134–156.Find this resource:

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Vilaplana Prieto, C., Jiménez-Martín, S., & García Gómez, P. (2011). Trade-off between formal and informal care in Europe. Gaceta Sanitaria, (Suppl. 2), 115–124.Find this resource:

Wagner, M., & Brandt, M. (2017). Long-term care provision and well-being of spousal caregivers: An analysis of 138 European regions. Journals of Gerontology, Series B: Psychological Sciences and Social Sciences, 73(4), e24–e34.Find this resource:

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Zhen, Z., Feng, Q., & Gu, D. (2015). The impacts of unmet needs for long-term care on mortality among older adults in China. Journal of Disability Policy Studies, 25(4), 243–251.Find this resource:

Zhu, H. (2015). Unmet needs in long-term care and their associated factors among the oldest old in China. BMC Geriatrics, 15, 46.Find this resource: