Income and wealth dependent co-payments to finance long term care: a life cycle perspective
In the Netherlands, individuals who utilize public formal long term care (LTC) provisions have to pay a copayment depending on income as well as wealth. Its dependency on wealth is currently part of the policy debate: some political parties advocate to abolish it while other parties argue for a larger wealth copayment. In this paper we show some important effects of amending the wealth copayment for elderly care.
Higher copayments lead to a decrease in public LTC expenditures and we assume that this translates into lower collective premiums. As expected, this levels out spending power disparities. The group with the largest spending power (from income and wealth combined) is most adversely affected because this group features the largest wealth. This outweighs the effect of the lower average LTC costs of this group.
A higher wealth copayment leads to generational redistribution. Older generations contribute a larger share of the LTC costs while younger generations benefit from the lower collective premiums. Younger generations also benefit over the full life cycle, and disparities in lifetime spending power within this group are slightly reduced. Finally, higher copayments lead to a redistribution between classes of LTC usage: the heavy users of LTC are affected more than the light LTC users.