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