Organizing and Financing Long-Term Care (LTC) Services for Older

Population: What can we learn from the Global Literature?

Sarbani Chakraborty, World BankLong-term Care Workshop

Sofia, BulgariaDecember 9, 2010

The Context – “From Red to Gray” Eastern Europe is aging rapidly• The proportion of people aged 65+ will increase significantly

over the next 20 years

Presentation Outline

Present a Framework for Financing and Organizing LTC services based on academic literature and country experience (Chakraborty)

Highlight features of OECD LTC systems and lessons learned (Koettl)

Why do we need a Framework?

Largely descriptive materials to date;

Insufficient attention on guiding Governments on public policy for LTC, especially role of public and private sectors;

Barrier to sound policy dialogue and identifying gaps and future policy options.

Questions Posed

Should the State finance LTC for all citizens, or is a safety net system that only protects those unable to pay for LTC adequate?

What are the equity and efficiency tradeoffs of different models of financing LTC?

Does a system of public and private contributions provide the best model for fair financing?

What is the optimal public/private provision mix in LTC services?

Long-Term CareIssues to Consider

Demand side The changing age structure will lead to higher demand; Ongoing medical and technical progress can lengthen time spent in disability;

Supply side Transforming institutional care into ambulatory or home-care settings can lead

to changes in the skill mix required with implications on public/private mix; Workforce shortages exacerbated by the increased participation of women in

the formal labor force, are likely to stimulate further inflows/outflows of LTC workers;

Stewardship and governance Finally, long-term care delivery will have to be more patient-centred and

adequately coordinated across care and social settings. Fragmented financing results in nonaligned incentives and “schizophrenic”

buying agent for LTC

Household Behavior and Public Policy Action

Type of HH Loss HH Strategy Government Strategy

Rare, impoverishing Pooling, Prevention Mandate pooling. Implement prevention

Rare, large Pooling, some saving Promote and regulate mandatory and voluntary insurance

Rare, medium Some saving Facilitate saving

Rare, small Do nothing Do nothing

Frequent, impoverishing

Saving, prevention Mandate savings, prevention, direct subsidies

Frequent, large Savings, prevention Facilitate and regulate saving

Frequent, medium Saving, prevention Facilitate saving

Frequent, medium and small

Some saving Facilitate saving

Public goods and private goods with externalities

n.a. Provide full public financing of interventions

Baeza and Packard, 2007

“Uncertainty and the Welfare Economics of Medical Care”

Uncertainty regarding disease and medical efficacy creates inefficient allocation and market failures; Does this apply to LTC? Is disability predictable?

Health sector prone to principal-agent problems; Would seem clearly applicable to LTC sector

The need for state intervention/non-market institutions. Would seem applicable to LTC sector

Main Findings - Financing

Spending on LTC substantial (next slide)

Severe failures in private LTC insurance (moral hazard and adverse selection)

High transaction costs of regulation

Rationale for Risk Pooling?

• The average costs in the United States for LTC (in 2008) are:

• $187/day for a semi-private room in a nursing home

• $209/day for a private room in a nursing home • $3,008/month for care in an Assisted Living

Facility (for a one-bedroom unit) • $29/hour for a Home Health Aide • $18/hour for a Homemaker services • $59/day for care in an Adult Day Health Care

Center

LTC Costs can be Impoverishing

Main Findings: Provision/Organization of LTC services

LTC “in its own right” is an emerging policy area Many OECD countries have embarked on developing

policies but “best-practice” models are lacking Major challenge is to develop financing models given

the institutional context and expected trends in disability and in the availability of informal care

Most countries rely on taxation for public financing of LTC, except i.e. GER; JAP; NED

Financial sustainability is under scrutiny due to upward pressures on workforce needs/quality/wages

Quality and responsiveness is poorly understood and measured

Taxpayers Patients/

Providers Providers

Government Insurance

Money flows

Service flows

Contributions, taxes

Payments to providers

Subsidies to households

Patient reimbursement

In developing LTC policies market and government failures must be jointly considered

A possible classification for LTC services and interventions

capacity of producers to freely enter markets (sunk costs, monopoly power, economies of scale and scope etc.)

capacity of buyers to obtain information on products (information asymmetry, data availability, quality etc.)

Classifying LTC services

Make or buy?Is regulating and contracting enough?

Is shifting the grid feasible and desireable for LTC services?

But once LTC becomes truly “generic” core functions and performance measures apply

Financing

collection pooling purchasing

Other Inputs knowledge labour pharmaceuticals capital consumables equipment Se

rvic

e de

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y

Org

anis

atio

n an

d m

anag

emen

t

Prod

uctio

n pr

oces

s

Outcome level and distribution

Financial protection level and distribution

Quality and Satisfaction level and distribution

State

Stewardship

Demand and Markets

Population

Source: HDR, WB 2000

 

ConclusionQuestions Posed: Answers?

• Should the State finance LTC for all citizens, or is a safety net system that only protects those unable to pay for LTC adequate? Better to think of universal entitlements based on large risk pools

• What are the equity and efficiency tradeoffs of different models of financing LTC?

Larger and consolidated risk pools are more equitable and efficient• Does a system of public and private contributions provide the

best model for fair financing?

It may be the most fiscally sustainable way to go• What is the optimal public/private provision mix in LTC

services?

There is no one size fits all model. But very low private sector participation may be sending a signal as well

THANK YOU