Financial incentives in long-term care

Long-term care (LTC) aims to help individuals to cope with their impairments. LTC may be provided at home or in an institution and it is composed of informal care – provided by family members, friends or neighbors – and of formal care, which is provided by professionals. LTC is mainly used by the elderly. The share of the elderly in the population will increase sharply over the next decades, and therefore LTC expenditures are expected to increase as well.
In many countries, a large share of total LTC expenditures is publicly financed. An increase in LTC expenditures that exceeds the growth of the Gross Domestic Product (GDP) means that LTC expenditures will crowd out other types of government spending, that the tax revenues need to go up or that the bill is passed on to future generations. In all cases, the increase in expenditures may challenge the support for public LTC expenditures. This threat is particularly serious in the Netherlands because of its outlier position with regard to LTC financing: the public LTC insurance scheme is more comprehensive and public LTC expenditures are the highest among the OECD countries.
Excessive LTC expenditure growth may be avoided. One of the ways in which LTC might be kept affordable, is to change the way in which it is financed. LTC financing arrangements affect the incentives for users, potential users, insurers and providers of formal and informal care. These incentives in turn affect the decisions that these individuals make and thus the quantity and the types of LTC that users end up using.
In my thesis, I describe LTC financing alternatives and their consequences for the allocation of LTC. This thesis consists of two parts. In the first part, I investigate how alternative ways of financing and organizing LTC are associated with differences in LTC use. In the second part of this thesis, I study how the government may intervene to keep LTC affordable and efficient.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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