A Comparative Study of Long Term Care Provision in the UK, Germany, Sweden and Japan

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A Comparative Study of Long Term Care Provision
in the UK, Germany, Sweden and Japan
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• Martin Karlsson, European University Institute
• Les Mayhew, Cass Business School, City University
• Robert Plumb, Cass Business School, City
  University
• Ben Rickayzen, Cass Business School, City
  University
• Research sponsored by The Actuarial Profession

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Research Questions

• How will the British LTC costs evolve under
  different health scenarios?
• What would the effects be of implementing the
  system of another country?
• What are the redistributive effects of the
  British LTC system in a comparative perspective?

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1. Cost Projections Model Overview

• Projection Model

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1. Cost Projections Data Sources

• Disability Data Rickayzen Walsh (2002)
  Disability Projection Model
• Multiple State Model based on OPCS survey and GAD
  population projections
• Three scenarios considered
• Pessimistic (A) No trends in the transition
  rates other than an improvement in overall
  mortality
• Baseline (C) 1 in 10 assumption
• Optimistic (N) 1 in 5 assumption
• Mapping Disability -gt Care Setting Based on The
  Health Survey for England (2002) and Rickayzen
  Walsh (2002)
• Separate mappings for men and women from three
  disability states into six care settings

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1. Cost Projections Data Sources (ctd.)

• The Economy
• Average earnings by age and gender as proxy for
  productivity (Inland Revenue 2003)
• Population projection (GAD)

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1. Cost Projections Informal Care

• Provision of Informal Care
• Age- and gender specific caregiving patterns form
  Family Resources Survey (Department of Work and
  Pensions 2001).
• Aggregate Amount of Care (hours) provided derived
  from Rickayzen Walsh (2002)
• Assumptions
• OPCS 0-3 can provide care
• Recipients get 30 hours per week on average
• People below 20 years do not provide any care

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1. Cost Projections Results

• LTC population Increases by 50 in 50 years
• Largest absolute increase in informal care
• Largest relative increase in formal home care

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1. Cost Projections Results 2

• Costs of formal care increase from 11 bn (2000)
  to 14 bn (2040)
• Residential home care comprises around 50 per
  cent throughout
• Share of public spending in total costs increases

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1. Cost Projections Results 3

• The tax rate required drops from 1 initially to
  0.95 in 2010
• The peak is reached in 2040
• In 2050, the implied tax rate is 1.3 per cent.

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1. Cost Projections Results 4

• Informal Care The share of younger recipients
  decreases from one third to 20-25 (2030)
• Until 2030 Excess supply of care
• Later on a shortage that peaks in 2042 at 4.2
  or 250,000 carers.

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1. Cost Projections Sensitivity Analysis

• Optimistic Scenario peaks at 12 bn (2037)
• Pessimistic Scenario peaks at 20 bn (2051)
• Informal Care Huge Shortage 2020 onwards with
  pessimistic scenario.

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2. Comparative Study Method

• The mapping between disability and care setting
  assumed to be the same in all cases (i.e. No
  demand responses)
• To estimate the means-tested parts of the support
  systems we use BHPS data on wealth and earnings
  of the elderly.
• We assume that the relative distribution of
  wealth and earnings among the elderly remains
  constant throughout the projection period.

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2. Comparative Study Cases
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2. Comparative Study Germany

• Social Insurance Scheme Introduced in 1995 to
  halt income support spending
• Financed by proportional income taxation, 1.7
• Insurance is administered by nation-wide,
  semi-public Care Funds, that compete for clients.
• High earners may opt out of social insurance
• Spouse and children are also covered
• Benefits depend on severity of disability and
  care setting and cover roghly half of actual
  charges
• Many elderly, especially in institutional care,
  still need income support to cover LTC costs.

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2. Comparative Study Japan

• Social Insurance Scheme Introduced in 2000
• Financed by proportional income taxation (45 ),
  insurance contributions (45 ) and out-of-pocket
  payments (10 ).
• Insurance premiums are paid by people aged 40 and
  older
• The Insurance is administered by local
  authorities
• Benefits are solely based on need. There are six
  different levels of severity.

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2. Comparative Study Sweden

• LTC is financed out of local income taxation (95
  ) and out-of-pocket payments (5 )
• Financing and provision of LTC is administered by
  local authorities, that enjoy some discretion in
  their design of local policies.
• The national government takes on a regulatory
  role and decides on standards for out-of-pocket
  payments (PNA and maximum charges) and delivery
  of care.
• The government also undertakes risk adjustment
  between municipalities.
• Provision of care is mainly public, but there is
  a growing private sector.

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2. Comparative Study United Kingdom

• Dual System The NHS and local authorities. Both
  funded out of taxes.
• NHS is responsible for health care and local
  authorities for social care.
• Eligibility for free or subsidised care care is
  based on means testing.
• Government grant not earmarked, but national
  government gives spending recommendations and
  regulates means testing
• Local variations in the way rules and assessments
  are carried out and priority cases determined

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2. Comparative Study Results 1

• The British system is by far the cheapest (1
  ), whereas the Swedish one is the most expensive
  (2.4 )
• However, Japanese taxpayers end up paying more
  from the age of 40 onwards
• The required contribution rates move more or less
  proportionately over the projection period

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2. Comparative Study Distributive Effects

• In order to compare the gainers and losers
  from different kinds of systems, we have created
  18 stylised individuals differing in
• Gender
• Age (20/40/60 in 1996)
• Income (low/medium/high)
• We calculate net present value from different LTC
  systems by comparing expected contributions and
  expected benefits.
• Real discount rate used is 2 .

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2. Comparative Study Distributive Effects
The Stylised Individuals
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2. Comparative Study Results 2
NPV of Males

• The British System is particularly beneficial for
  young and middle-aged men, whereas the Swedish
  and Japanese systems seem less attractive for
  these groups
• For older men, the Swedish system offers the best
  benefits, whereas the German and Japanese system
  are worse.

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2. Comparative Study Results 3
NPV of Females

• For young women of all income groups, the British
  system offers the best NPV, whereas the Swedish
  and German systems are the worst.
• For middle-aged and older women of all income
  groups, Sweden offers the best system, whereas
  Germany and the UK offer the worst.

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2. Summary of results

• Costs of formal care projected to increase from
  11 bn today to 14 bn in 2040.
• Informal Care Large number of recipients. The
  supply of care could be a problem, which can be
  solved by men providing such care at the same
  level as women.
• Most changes occur after 2015
• A switch to a Japanese or Swedish system would
  entail considerable tax increases. A shift to a
  German system would also increase the burden on
  low and medium income earners a lot.
• The UK system is favourable to young and
  middle-aged male individuals and to young females.