Impacts of long-term elderly health care funding system reforms on behavioural and health outcomes.
Lead Research Organisation:
University of Leicester
Department Name: Economics
Abstract
The main objective of the proposed project is to study detailed economic and health outcomes resulting from governmental provision of financial support to assist the elderly pay for their long-term care. The long-term care is defined as the care for individuals who require support in many aspects of their lives for a prolonged time period.
The elderly in the UK often face financial risks caused by expensive long-term elderly care. Individuals often fail to accumulate a sufficient amount of assets due to the high levels of uncertainty regarding when and in what way they would develop the need for care. It is also impossible to predict for how long one would need care. To make the matter more complex, the long-term healthcare insurance market is virtually non-existent. These circumstances often present the elderly with the need to finance their care by selling their own properties (Dilnot commission proposals, 2012).
In response to growing concerns, the UK recently announced the Dilnot commission proposals (2012). The two main pillars of the proposals include i) capping the long-term care cost at (approximately 35,000 pounds) for everybody and ii) increasing the asset threshold for the means tested help from the current value of 23,250 pounds to 100,000 pounds. This means that for every individual in UK, the highest cost one needs to pay out of their pocket is 35,000 pounds. Once they spend 35,000 pounds on care, an individual essentially receives care for free. The only cost one would need to pay includes daily living expenditures. The commission estimate the cost at 1.7 billion pounds.
On the one hand, these measures would provide financial assistance to the elderly themselves or families who are providing the care. On the other hand, however, the increasing financial support from the government could generate various unintended responses, which in turn may drastically increase the cost of elderly care above and beyond that which is currently estimated. In other words, if the elderly in the UK are currently limiting their use of long-term care due to its high cost, increased cost coverage may increase their usage beyond what the commission members had expected. This is a classical moral hazard problem in the insurance literature. Not being able to take account of all the behavioural effects seems to be a valid concern. The Dilnot commission indeed raises this issue and clearly states in their report that their simulated cost fails to address these potential behavioural responses.
Despite their importance, evidence for these potential responses is scarce. The current research proposes exactly to fill this gap in the literature by studying other regions/countries that have implemented funding systems that allow us to study these behavioural responses, then applying these to the UK to estimate changes in overall resource use and health benefits, both of which may increase or decrease. Examples of these responses include i) the probability of using formal care provided by people other than family members, ii) the duration of stay at elderly residences may also increase, perhaps as they start using the service earlier on. iii) We are also uncertain as to whether length of life would be affected by the usage of formal care. At the same time, however, having affordable care may reduce the physical and emotional burden faced by informal care takers, who typically are family members. This, therefore, implies that additional potential effects include those on labour supply as well as health outcomes of family members.
The proposed research will mainly be undertaken at Lancaster University, with mentors Professor Bruce Hollingsworth, Professor Ian Walker and the Division of Health Research.
The elderly in the UK often face financial risks caused by expensive long-term elderly care. Individuals often fail to accumulate a sufficient amount of assets due to the high levels of uncertainty regarding when and in what way they would develop the need for care. It is also impossible to predict for how long one would need care. To make the matter more complex, the long-term healthcare insurance market is virtually non-existent. These circumstances often present the elderly with the need to finance their care by selling their own properties (Dilnot commission proposals, 2012).
In response to growing concerns, the UK recently announced the Dilnot commission proposals (2012). The two main pillars of the proposals include i) capping the long-term care cost at (approximately 35,000 pounds) for everybody and ii) increasing the asset threshold for the means tested help from the current value of 23,250 pounds to 100,000 pounds. This means that for every individual in UK, the highest cost one needs to pay out of their pocket is 35,000 pounds. Once they spend 35,000 pounds on care, an individual essentially receives care for free. The only cost one would need to pay includes daily living expenditures. The commission estimate the cost at 1.7 billion pounds.
On the one hand, these measures would provide financial assistance to the elderly themselves or families who are providing the care. On the other hand, however, the increasing financial support from the government could generate various unintended responses, which in turn may drastically increase the cost of elderly care above and beyond that which is currently estimated. In other words, if the elderly in the UK are currently limiting their use of long-term care due to its high cost, increased cost coverage may increase their usage beyond what the commission members had expected. This is a classical moral hazard problem in the insurance literature. Not being able to take account of all the behavioural effects seems to be a valid concern. The Dilnot commission indeed raises this issue and clearly states in their report that their simulated cost fails to address these potential behavioural responses.
Despite their importance, evidence for these potential responses is scarce. The current research proposes exactly to fill this gap in the literature by studying other regions/countries that have implemented funding systems that allow us to study these behavioural responses, then applying these to the UK to estimate changes in overall resource use and health benefits, both of which may increase or decrease. Examples of these responses include i) the probability of using formal care provided by people other than family members, ii) the duration of stay at elderly residences may also increase, perhaps as they start using the service earlier on. iii) We are also uncertain as to whether length of life would be affected by the usage of formal care. At the same time, however, having affordable care may reduce the physical and emotional burden faced by informal care takers, who typically are family members. This, therefore, implies that additional potential effects include those on labour supply as well as health outcomes of family members.
The proposed research will mainly be undertaken at Lancaster University, with mentors Professor Bruce Hollingsworth, Professor Ian Walker and the Division of Health Research.
Technical Summary
In order to carry out the project, a natural experimental approach will be employed by exploiting the exogenous variation in the price of long-term formal elderly care induced by the introduction of policies in Scotland and Germany.
The identification strategy involves comparing a group of affected individuals (i.e. treatment group) to another group of otherwise very similar individuals who are not under the influence of the policy (i.e. control group).
The econometric specifications that are likely to be used during the project include OLS, probit/logit models as well as single-spell and multiple-spell duration analysis framework.
The two policies that will be used for the analysis are the 2002 Community Care and Health Act in Scotland and the 1995 German policy that introduced a universal long-term health insurance system. The Scottish policy enforced that the cost for personal care, which was previously paid by the elderly themselves, be abolished completely regardless of the care settings. This implies that cost incurred for personal care provided in residential care homes as well as individual houses are all covered. Available datasets include Home care, which is collected by Scottish Executive, as well as Scottish Health Survey and Scottish Household Survey commissioned by Scottish government.
The German policy introduced mandatory public or private LTC insurances for the entire population of 82 million. 90% of the population belong to the public system and their employers each pay contributions equal to 0.85% of each employee's gross wages or salary. Introduction of long-term care insurance protects individuals from having to face large sum of cost at the end of their lives. Such a system may ensure individuals to accumulate needed care cost throughout their working lives, reducing the potential cost for the government. Datasets for the analysis is German Socio Economic Panel Study is provided by the German Institute for Economic Research.
The identification strategy involves comparing a group of affected individuals (i.e. treatment group) to another group of otherwise very similar individuals who are not under the influence of the policy (i.e. control group).
The econometric specifications that are likely to be used during the project include OLS, probit/logit models as well as single-spell and multiple-spell duration analysis framework.
The two policies that will be used for the analysis are the 2002 Community Care and Health Act in Scotland and the 1995 German policy that introduced a universal long-term health insurance system. The Scottish policy enforced that the cost for personal care, which was previously paid by the elderly themselves, be abolished completely regardless of the care settings. This implies that cost incurred for personal care provided in residential care homes as well as individual houses are all covered. Available datasets include Home care, which is collected by Scottish Executive, as well as Scottish Health Survey and Scottish Household Survey commissioned by Scottish government.
The German policy introduced mandatory public or private LTC insurances for the entire population of 82 million. 90% of the population belong to the public system and their employers each pay contributions equal to 0.85% of each employee's gross wages or salary. Introduction of long-term care insurance protects individuals from having to face large sum of cost at the end of their lives. Such a system may ensure individuals to accumulate needed care cost throughout their working lives, reducing the potential cost for the government. Datasets for the analysis is German Socio Economic Panel Study is provided by the German Institute for Economic Research.
Planned Impact
The proposed project directly contributes to the current debate in the UK on how to create a sustainable long-term care funding system that preserves the quality of formal care and the integrity of the UK elderly.
When designing a new and successful funding system, it is essential that the policy makers are aware of all the unintended consequences on behavioural and health outcomes. This is because these outcomes may potentially increase the cost of providing long-term care to the population beyond what the commission members had expected.
The contribution of the project is not limited to the UK audience. Many OECD countries are currently facing the need to reform their funding systems. This is due to the rapidly aging population as we as low fertility rates experienced in many countries. Moreover, female labour supply has been increasing since the 1970s and this induces women to delayed giving birth. All these factors contribute to increasing demand for formal long-term care, but reduced supply of formal, and more importantly, informal care takers, who are usually the family members of the elderly.
Despite the urgent need for evidence, hardly any studies are conducted on how financial incentives related to long-term elderly care affects individual behaviour and health outcomes. The limited evidence mainly investigates the US cases. It is essential that studies be conducted outside of the US to ensure applicability of findings to the other countries that operate very different funding and health care systems to those of the US.
In addition to the contributions discussed above, the interdisciplinary nature of the proposed project contributes to the literature in many academic fields. Please see the "Academic Beneficiaries" section for a more detailed discussion.
When designing a new and successful funding system, it is essential that the policy makers are aware of all the unintended consequences on behavioural and health outcomes. This is because these outcomes may potentially increase the cost of providing long-term care to the population beyond what the commission members had expected.
The contribution of the project is not limited to the UK audience. Many OECD countries are currently facing the need to reform their funding systems. This is due to the rapidly aging population as we as low fertility rates experienced in many countries. Moreover, female labour supply has been increasing since the 1970s and this induces women to delayed giving birth. All these factors contribute to increasing demand for formal long-term care, but reduced supply of formal, and more importantly, informal care takers, who are usually the family members of the elderly.
Despite the urgent need for evidence, hardly any studies are conducted on how financial incentives related to long-term elderly care affects individual behaviour and health outcomes. The limited evidence mainly investigates the US cases. It is essential that studies be conducted outside of the US to ensure applicability of findings to the other countries that operate very different funding and health care systems to those of the US.
In addition to the contributions discussed above, the interdisciplinary nature of the proposed project contributes to the literature in many academic fields. Please see the "Academic Beneficiaries" section for a more detailed discussion.
Publications
Ohinata A
(2019)
Financial support for long-term elderly care and household saving behaviour
in Oxford Economic Papers
Bruce Hollingsworth
(2021)
The Impacts of Free Universal Elderly Care on the Supply of Informal Care and Labour Supply
in Oxford Bulletin of Economics and Statistics
Hollingsworth B
(2021)
The Impacts of Free Universal Elderly Care on the Supply of Informal Care and Labour Supply*
in Oxford Bulletin of Economics and Statistics
Description | Contribution to the systematic review conducted by the Government Office for Science |
Geographic Reach | National |
Policy Influence Type | Contribution to a national consultation/review |
Description | The turnover rate of formal long-term care staff in the UK |
Amount | £3,774 (GBP) |
Funding ID | SRG22\220655 |
Organisation | University of Leicester |
Sector | Academic/University |
Country | United Kingdom |
Start | 10/2022 |
End | 10/2025 |
Description | Elderly care and savings |
Organisation | Marche Polytechnic University |
Department | Department of Economics and Social Sciences |
Country | Italy |
Sector | Academic/University |
PI Contribution | We are collaborating to write a paper on the issue of the long-term elderly care and savings. More specifically, we are investigating whether financial support provided by the Scottish government to pay for elderly care affected individuals' savings behaviour. |
Collaborator Contribution | My partner is contributing to the above research by co-authoring the paper. |
Impact | We have produced a working paper, which has been submitted to a journal for a review. In addition, a short summary of the findings was circulated by the iHEA newsletter. We are in preparation for another short summary to be circulated via the Royal Economic Society. |
Start Year | 2013 |
Description | Financial incentives and elderly care usage |
Organisation | Lancaster University |
Country | United Kingdom |
Sector | Academic/University |
PI Contribution | We are working on a paper to investigate whether financial incentives provided by the UK government affects the elderly's care usage. |
Collaborator Contribution | My partners are co-authoring the paper described in the above box. |
Impact | This paper is still work-in-progress although we expect a working paper to be circulated in the next 6 months. |
Start Year | 2013 |
Description | Financial incentives and elderly care usage |
Organisation | Marche Polytechnic University |
Country | Italy |
Sector | Academic/University |
PI Contribution | We are working on a paper to investigate whether financial incentives provided by the UK government affects the elderly's care usage. |
Collaborator Contribution | My partners are co-authoring the paper described in the above box. |
Impact | This paper is still work-in-progress although we expect a working paper to be circulated in the next 6 months. |
Start Year | 2013 |
Description | Financial incentives towards long-term elderly care and the health outcomes |
Organisation | Lancaster University |
Department | Department of Psychology |
Country | United Kingdom |
Sector | Academic/University |
PI Contribution | We are collaborating to write a paper on the issue of the long-term elderly care funding and health outcomes of the care recipients. More specifically, we are investigating whether financial support provided by the Scottish government to pay for elderly care affected the care recipients' health outcomes. In another project, we find that the same policy induced informal care takers to reduce the probability/hours of providing care towards their family members and instead hire external formal care workers, we are interested in finding out whether this switch led the care recipients to experience an increase/decrease in their health outcomes. |
Collaborator Contribution | My collaborators are co-authoring this paper with me. |
Impact | We are very close to publishing a working paper in the public domain. Once the paper is circulated as a working paper and the paper is presented in multiple international conferences and seminars, we will submit the paper to a journal. |
Start Year | 2016 |
Description | Financial incentives towards long-term elderly care and the health outcomes |
Organisation | Marche Polytechnic University |
Department | Department of Economics and Social Sciences |
Country | Italy |
Sector | Academic/University |
PI Contribution | We are collaborating to write a paper on the issue of the long-term elderly care funding and health outcomes of the care recipients. More specifically, we are investigating whether financial support provided by the Scottish government to pay for elderly care affected the care recipients' health outcomes. In another project, we find that the same policy induced informal care takers to reduce the probability/hours of providing care towards their family members and instead hire external formal care workers, we are interested in finding out whether this switch led the care recipients to experience an increase/decrease in their health outcomes. |
Collaborator Contribution | My collaborators are co-authoring this paper with me. |
Impact | We are very close to publishing a working paper in the public domain. Once the paper is circulated as a working paper and the paper is presented in multiple international conferences and seminars, we will submit the paper to a journal. |
Start Year | 2016 |
Description | A seminar presentation at the University of Lancaster |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | Local |
Primary Audience | Schools |
Results and Impact | Seminar presentation at the University of Lancaster to discuss the findings from "Substitutability of informal v.s. formal elderly care: Studying the effect on health outcomes". |
Year(s) Of Engagement Activity | 2019 |
Description | A seminar presentation at the University of Leicester |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | Local |
Primary Audience | Public/other audiences |
Results and Impact | Presented the findings from "Informal care supply and labour supply: The impacts of financial support for long-term elderly care" to the local audience visiting the University of Leicester. |
Year(s) Of Engagement Activity | 2019 |
Description | A talk or presentation - 8th Australasian Workshop on Econometrics & Health Economics 3 May 2017 |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | I presented our findings from our paper entitled "The labour supply and care supply of informal carers: Impacts of the financial support for long-term elderly care" to approximately 40 health researchers. The presentation informed international researchers in health the importance of the topic of ageing and sparked numerous questions. Participants informed me afterwards that their acquired a deeper understanding of the effects of financial support on the informal caregivers. |
Year(s) Of Engagement Activity | 2017 |
Description | A talk or presentation-Lancaster university |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | Regional |
Primary Audience | Schools |
Results and Impact | I presented our findings from our paper entitled "Is it better to be looked after by your own families?: Health impacts of switching from informal to formal long-term elderly care" to approximately 40 economics and health researchers at Lancaster University and received valuable feedback that need to be reflected in the future output. |
Year(s) Of Engagement Activity | 2019 |
Description | Contributions to the UK government evidence review |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | National |
Primary Audience | Policymakers/politicians |
Results and Impact | I was contacted by the Government Office for Science as they are currently working with the Department of Health, Cabinet Office and others to bring together the best evidence to inform a Green Paper on the future of adult social care, which will be published in 2018. As part of this, they were preparing a rapid evidence review and asked me to contribute by informing them of our findings. |
Year(s) Of Engagement Activity | 2017 |
Description | Counterfactual Methods for Policy Impact Evaluation (Milan) |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | Approximately 20 economics researchers attended my presentation to hear and discuss the findings from our paper titled "The Financial Support for Long-Term Elderly Care and Household Savings Behaviour". |
Year(s) Of Engagement Activity | 2016 |
Description | European Association of Health Economics (Hamburg). |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | Approximately 20 economics researchers attended my presentation to hear and discuss the findings from our paper titled "The Financial Support for Long-Term Elderly Care and Household Savings Behaviour". |
Year(s) Of Engagement Activity | 2016 |
Description | Media Briefings in the Royal Economics Society |
Form Of Engagement Activity | A magazine, newsletter or online publication |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | This feature is intended to generate media interest and appeal to audiences beyond academia. The media pack is sent to more than 800 journalists and bloggers across Europe and North America. It is also posted on the RES website (http://www.res.org.uk/details/mediabrief/9102671/PUBLIC-FUNDING-FOR-OLD-AGE-CARE-DISCOURAGES-SAVINGS-Evidence-from-Scotland.html). |
Year(s) Of Engagement Activity | 2016 |
Description | Presentation-Kansai Labour Research Seminar |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | I presented our findings from our paper entitled "The labour supply and care supply of informal carers: Impacts of the financial support for long-term elderly care" to approximately 40 health researchers in Japan during an inter-departmental seminar session that invites scholars from across Japanese universities. The presentation informed Japanese researchers the importance of the topic of ageing and sparked numerous questions. Participants informed me afterwards that their acquired a deeper understanding of the effects of financial support on the informal caregivers. |
Year(s) Of Engagement Activity | 2018 |
URL | https://sites.google.com/site/kansailabor/past-meetings |
Description | Royal Economic Society conference (Sussex) |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Schools |
Results and Impact | Approximately 20 economics researchers attended my presentation to hear and discuss the findings from our paper titled "The Financial Support for Long-Term Elderly Care and Household Savings Behaviour". |
Year(s) Of Engagement Activity | 2016 |
Description | Seminar presentation at the University of Leicester |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | Local |
Primary Audience | Schools |
Results and Impact | Seminar presentation at the University of Leicester to discuss the findings from "Substitutability of informal v.s. formal elderly care: Studying the effect on health outcomes". |
Year(s) Of Engagement Activity | 2019 |
Description | Seminar presentation during the 2015 iHEA conference |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Other audiences |
Results and Impact | I presented our paper on the financial incentives and savings behaviour during the iHEA 2015 conference. The paper was presented to other health researchers and sparked questions and discussions afterwards. |
Year(s) Of Engagement Activity | 2015 |
Description | Seminar presentations |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | National |
Primary Audience | Other audiences |
Results and Impact | I presented our paper on the financial incentives and savings behaviour during the following UK workshops and seminars. The paper was presented to other health researchers and sparked questions and discussions afterwards. The Health Economists' Study Group in Lancaster (June 2015), The Seminar series at the University of Leicester (October 2015), The Seminar series at the Lancaster University (December 2015), The Seminar series at the University of Manchester (December 2015), |
Year(s) Of Engagement Activity | 2015 |
Description | Seminar presentations |
Form Of Engagement Activity | A talk or presentation |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Other audiences |
Results and Impact | I presented our paper on the financial incentives and savings behaviour during the European Society for Population Economics in Izmir. The paper was presented to other health researchers and sparked questions and discussions afterwards. |
Year(s) Of Engagement Activity | 2015 |
Description | iHEA newsletter |
Form Of Engagement Activity | A magazine, newsletter or online publication |
Part Of Official Scheme? | No |
Geographic Reach | International |
Primary Audience | Other audiences |
Results and Impact | Together with my coauthor Matte Picchio from the Marche Polytechnic University, we submitted a short summary of our paper titled "The financial support for long-term elderly care and household savings behaviour" to be circulated in the iHEA newsletter. |
Year(s) Of Engagement Activity | 2015 |