New Developments in the Economics of Long-Term Care

Special Issue: Applied Economic Perspectives and Policy

New Developments in the Economics of Long-Term Care

With the ageing of populations in western economies and social changes regarding family, the question of how best to finance, organize, and manage long-term care (LTC) services is at the forefront of policy-making debates. A National Bureau of Economic Research (NBER) research summary identified long-term care expenditures as one of the greatest risks facing the elderly in the U.S. The Congressional Budget Office noted that expenditures for nursing homes, home health care, and other long-term treatments accounted for 8.5 percent of all U.S. health care spending. A projected three-fold increase in long-term care expenditures in real terms is expected over the coming decades with the ageing of the U.S. population. Similarly, long-term care is one of the few social policy areas which are experiencing both public and private insurance development in Europe. Although currently these expenditures account for less than 2 percent of European GDP in the OECD, they are projected to rise dramatically by 2050.

Economic analysis can contribute to a better understanding of the factors influencing both the demand and motivations underpinning demand for LTC, as well as institutional, financial and supply side determinants of long-term care services. Long-term care is perhaps one of the most dynamic areas of social policy to date. Given the importance of this debate for future social protection of our ageing society, it is surprising that little research has been done in this area. In the U.S., higher long-term care expenditures resulting from an ageing population and rising health care costs will put pressure on Medicaid budgets, inducing state and federal policy makers to increase taxes, cut budgets, or limit the coverage of program expenditures. In Europe, key questions include public support for LTC reforms, the valuation of informal care and its reimbursement, as well as the design of insurance contracts that overcome information problems inherent in this market.

One of the most striking paradoxes of the economic analysis of LTC lies in understanding why the private insurance market for long-term care insurance exhibits such a slow development, requiring the elderly to face most of the expenditure risks. Only 4 percent of long-term care expenditures are paid for by private insurance policies. In the U.S., insurance companies are discontinuing enrollment in LTC insurance programs despite projections showing that consumer demand for these products will grow. Some evidence suggests that the development of public insurance and the entrenched social norms of intergenerational care giving are influencing the development of this market to varying degrees across the OECD countries. In Europe, the private LTC insurance is even less developed than in the U.S. The organization of long term care is generally characterized by intensive household involvement, limited public coverage relative to health care, highly decentralized and privately run management of LTC facilities.

This special issue of AEPP attempts to address questions regarding the role of market forces in providing and funding long-term care, the ways to overcome market failures and information asymmetries, incentives to expand the provision of long term care as well as financing schemes to balance out efficiency, access, and quality goals.

Guest editors

Martin Karlsson (Technische Universität Darmstadt)
Bernard van den Berg (University of York)

Coverage of topics

The special issue could include contributions in the following areas:

The political economy of long-term care (LTC)
Asymmetric information between payers and recipients
The interplay between government, market, and family funding sources
Risk adjustment in public LTC systems
Market failures/inefficiencies in LTC insurance markets
Methodology to determine LTC insurance coverage
Personal care budgets as alternatives to finance and purchase of LTC

Submitting:

Submissions will be electronically submitted to AEPP and emailed to the guest editors at:

karlsson@vwl.tu-darmstadt.de
bernard.vandenberg@york.ac.uk

Deadline for paper submission is 15 October 2011.