policy challenges of financing and providing long-term- care
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Policy challenges of financing and providing
long-term-care
Johannes KoettlEurope and Central Asia Regions – Human Development Sector
Sofia, Bulgaria - December 9, 2010
Key messages1. LTC sector has to prepare for future demographic
“shocks”
2. Substantial future fiscal pressure from LTC expenditures in ECA countries
3. Policy implicationsi) Urgent need to mobilize financing for future LTC
expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits
1. Prepare for demographic shocks
Population is aging rapidly, yet not at a constant rate, but in waves
These waves will lead to sudden increases in the number of dependent people
There will be much less healthy people, and more and more dependent people
Who will then care for the dependent?
There will be much less young people, and more and more old people
Who will then pay the care for the dependent?
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2010
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2010 Female 2010
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2020
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2020 Female 2020
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2030
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2030 Female 2030
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2040
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2040 Female 2040
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2050
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2050 Female 2050
Example: BulgariaBulgarian society is aging rapidly, yet not
at a constant rate, but in waves: 2060
Source: Eurostat
Y00Y04Y08Y12Y16Y20Y24Y28Y32Y36Y40Y44Y48Y52Y56Y60Y64Y68Y72Y76
Y80_MAX
-900000 -400000 100000 600000 1100000
Male 2060 Female 2060
Sudden increase of 75+ age group during 2020s and after
2045... Annual population growth rate by age group
Source: Eurostat
…will lead to sudden increases in the number of dependent people…
Projected annual population growth rates by dependency level in Bulgaria
Source: World Bank staff calculations
…while the healthy population is constantly decreasing (green line)
Projected annual population growth rates by dependency level in Bulgaria
Source: World Bank staff calculations
Who will care and who will pay?
There will be much less healthy people, and more and more dependent people
Who will then care for the dependent?
There will be much less people in working age, and more and more retired people
Who will then pay the care for the dependent?
Today: 18 healthy per severely dependent2060: 10 healthy per severely dependent
Projected inverse dependency ratios for Bulgaria
Source: World Bank staff calculations
Today: 4 aged 15-64 per 65+2060: less than 2
Projected inverse dependency ratios for Bulgaria
Source: World Bank staff calculations
Key messages1. LTC sector has to prepare for future demographic
“shocks”
2. Substantial future fiscal pressure from LTC expenditures in ECA countries
3. Policy implicationsi) Urgent need to mobilize financing for future LTC
expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits
2. Substantial future fiscal pressure from LTC expenditures in ECA
countries
Combination ofSteep expenditure increases per beneficiary in the
past (quality improvements)Expansion of formal services (larger share of
elderly consume formal services)Overall increase in number of elderly
Strong expenditure growth dynamic
Key messages1. LTC sector has to prepare for future demographic
“shocks”
2. Substantial future fiscal pressure from LTC expenditures in ECA countries
3. Policy implicationsi) Urgent need to mobilize financing for future LTC
expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits
3.i) Urgent need to mobilize financing for future LTC expenditures now
Risk-pooling is essential to avoid old-age poverty
Private LTC insurance has not been very successfulMarket failures (adverse selection, risk selection)Unpredictability of costs lead to high mark-ups
Large role for public sectorTax-financed (cash benefits, social assistance)Contribution financed (social security) Both are pay-as-you-go mechanisms Who will pay?
Who will pay?Today’s young can pay for tomorrow’s old…
Source: Eurostat
…but who will pay for today’s young when they are old?
Source: Eurostat
?
Increase private savings for retirement and dependency
nowIncrease savings of current working age
population for their own retirement and dependency needs
Private financial products (not LTC insurance for in-kind benefits) to insure against poverty in case of dependencyExample of FranceEnhanced annuity (life insurance payments
increases in case of dependency)Reversed mortgage
3.ii) Control demand and costs for formal LTC services
From health to social services and from institutional to community-based care Channel future demand for formal LTC to more adequate and less
expensive services Away from medical care and hospital care Toward social care, especially community-based care Resist converting hospital infrastructure into inpatient LTC
infrastructure Rather, invest in community care centers that offer a wide variety
of (outpatient) care services (daycare and home-based care)
From care fragmentation to care coordination Especially between health and social sector to avoid cost shifting
at the expense of patients Joint needs assessments by inter-disciplinary teams (GP and social
worker) Scaled benefits
3.ii) Control demand and costs for formal LTC services
From producing to purchasing LTC services In the future, a much larger share of the economy will evolve
around providing care Cannot be done by public sector alone Define core competencies of the public sector The rest, buy from private market Proper regulation, accreditation, standards of care, and quality
control mechanisms Institutions and mechanisms might take time to develop In the meantime, explore potential of public-private
partnerships
From in-kind to cash benefits Puts consumer in charge Main vehicle to support (cheap) informal care Maybe easier to control public expenditures on cash benefits Explore potential of vouchers
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