How Will We Provide and Pay for Long-Term Care?

Abstract

Ageing produces not only financial dependency but also physical dependency. The projected fiscal costs of increased long-term care provision can be higher than those of increased pension provision. Cost projections can be questioned for failing to take account of increased demands for formal care as female labour force participation rises and as social constrains and household structures supportive of informal caring disappear. New ways are needed to pay for care, and conventional methods have not proved successful. Voluntary saving is unlikely to suffice, equity release schemes are inefficient, and mandatory care insurance schemes add burdens to wage costs in the same way as mandatory pension schemes do. The paper proposes the recouping of care costs from bequests as a way of increasing economic efficiency, of increasing choice and provision, and of reinforcing traditional intra-familial responsibilities. However, some redistribution to the less well-off elderly is inevitable. Evidence and examples of care technologies, of care costs, and of care financing systems are drawn from across the OECD area.