The future of long-term care: a public policy assessment of funding and organisation

Joan Costa-i-Font, Edward C. Norton, Luigi Siciliani 12 September 2017



Long-term care is at the forefront of a new wave of reforms extending the role of the public sector in healthcare. The most obvious pressure for such reforms comes from increasing demand as a result of population ageing and a reduction in the supply of informal care (traditional informal caregivers are increasingly taking employment). However, there is incomplete private long-term insurance in barely all developed countries (Costa-Font 2012). Hence, reforms are needed both due to an increasing need (e.g. increased female labour market participation, reducing the supply of informal caregivers, and the increase of single person households) as well as the fact that programmes in place (e.g. Medicaid in the US, the NHS in the UK, etc.) are implicitly becoming the main source of funding of long-term care. The clearest examples are from Japan’s expansion of long-term care expenditure that more than doubled from 2000 to 2011 alone (Shimizutani 2013).

Similarly, in most developed countries we are envisaging a growing dependence on long-term care to provide post-acute care following a hospital stay. Most health care programmes in place are designed to fund only a limited intensity of post-acute care, hence households might end up facing significant costs to fund long-term care in the absence of public support, which might end up impoverishing them and eventually even bankrupting them. Alternatively, the health systems in some western countries are becoming increasingly less efficient by providing assistance to elderly people who instead need long-term care, giving rise to the well-known ‘bed blocking’ problem, which is deemed the cause of a significant share of excessive hospital care use. The challenge for governments is to figure out how best to fund and organise the public long-term care system to ensure both that provision of care is efficient for both the health and social care systems, and at the same time acceptable standards of equity in the access to care are met.

A recent special issue of the journal Fiscal Studies adds to our understanding of some of the above mentioned issues, and more specifically should help in thinking about how best to design the public funding and organisation of long-term care systems in western countries – drawing on empirical evidence and clear policy lessons from several countries (the Netherlands, Germany, Spain, England, and the US) (Costa-Font et al. 2017). We argue that in designing a public long-term care system one ought to consider (i) the public sustainability of the system, (ii) the effects on household decisions, (iii) equity of access, and (iv) the importance of organisational incentives.

Financial sustainability

In thinking about expanding public funding for a set of new programmes that were provided by the family in the past, one of the main constraints is that of its financial sustainability. Given the weak financial sustainability of most welfare states in Europe, the design of long-term care systems ought to account for how much funding can be realistically allocated to it, and what the associated trade-offs between equity and efficiency arising from making such choices are. Wouterse and Smid (2017) show that in thinking about the design of a public long-term care system such as the one in the Netherlands, public financing instruments leading to higher redistribution tend to be costlier, hence one faces an equity and efficiency trade-off in deciding how best to finance the care. One of the particular features affecting the financial sustainability of a publicly funded system is the extent of public subsidisation of informal care. Geyer et al. (2017) draw from the German long-term care insurance system to find that informal caregiving leads to sizeable indirect fiscal effects related to forgone tax revenues, of about 7.2% of the average fiscal costs of long-term care. Hence, in designing informal care subsidies such as caregiving allowances, one ought to consider such additional costs to the taxpayer.

Non-neutral effects on savings

Another important feature associated with the public financing of long-term care lies in the non-neutral effect on a household’s behaviour and, more specifically, precautionary saving motivations. However, Costa-Font and Vilaplana-Prieto (2017), drawing on evidence form the Spanish public long term care system, finds some evidence of crowding-out of savings motivations (savings decline ranging from 13% to 38% of the cash allowance). But importantly, such an effect only emerges when subsidies are provided in cash in the form of caregiving allowances, and not when the government funds community care (home help). The policy implications suggest that community services ought to be prioritised, and if cash subsidies are considered they ought to be made conditional on being used on long-term care without substituting pre-existing supports.

But funding exerts distributional effects

However, public financing has important positive effects when one looks at the equity in the access to LTC. Carrieri et al. (2017) provide evidence of higher inequities in the use of unskilled home care in areas where public financing of long-term care is relatively low (Southern Europe), than in areas where the public–private mix of financing is more balanced (Continental Europe). More generally, they find that public funding can play a role in improving the equity in the access to long-term care.

Not-for-profits and organisational autonomy matters

Similarly, as for the effect on the financing of long-term care, the organisation of its providers typically involves both for-profit and not-for-profit agents, and it is important to understand whether the strategies of both types of providers are comparable in terms of efficiency. Kim and Norton (2017) find in the context of the Medicare prospective payment system in the US that for-profit agencies are more responsive than not-for-profit agencies to financial incentives, and therefore contribute disproportionately to the increase in Medicare home health spending under the prospective payment system. Similarly, Gaughan et al. (2017) find that hospitals in England with Foundation Trust status, which gives them greater financial autonomy and flexibility, have fewer delayed discharges.

What have we learned so far?

It appears that there is a clear role of the government in the financing, and to a lesser extent in the organisation, of long-term care services. However, the introduction of some redistributive public funding designs can pose a threat to the financial sustainability of such systems, especially in the longer run. Similarly, it is important to pay attention to the design of subsidies and supports, as unconditional caregiving subsidies in cash affect saving motivation. However, publicly funded system fare better on equity of access. Similarly, the organisation of long-term care indicates that the not-for-profit status of an organisation and the degree of hospital autonomy influence service delivery to a large extent.


Costa-Font, J (2012), “Incompleteness of Long Term Care Insurance”

Costa-Font, J, E Norton and L Siciliani (2017), "The Challenges of Public Financing and Organisation of Long-Term Care", Fiscal Studies 38(2): 365-368.

Geyer, J, P Haan, and T Korfhage (2017), “Indirect fiscal effects of long-term care insurance”, Fiscal Studies 38(2): 393-415.

Costa-Font, J, and C Vilaplana-Prieto (2017), “Does the expansion of public long-term care funding affect saving behaviour?”, Fiscal Studies 38(2): 417-443.

Carrieri, V, C Di Novi, and C E Orso (2017), “Home sweet home? Public financing and inequalities in the use of home care services in Europe”, Fiscal Studies 38(2): 445-468.

Kim, H, and E C Norton (2017), “How home health agencies’ ownership affects practice patterns”, Fiscal Studies 38(2): 469-493.

Gaughan, J, H Gravelle, and L Siciliani (2017), “Delayed discharges and hospital type: evidence from the English NHS”, Fiscal Studies 38(2): 495-519.

Shimizutani, S (2013), “The future of Japan’s Long-Term Care Insurance Program”,

Wouterse, B, and B Smid (2017), “How to finance the rising costs of long-term care: four alternatives for the Netherlands”, Fiscal Studies 38(2): 369-391.



Topics:  Health economics

Tags:  healthcare, long-term care, NHS, Medicaid, policy reform

Associate Professor (Reader) of Political Economy, London School of Economics and Political Science

Professor, Department of Health Management and Policy and Department of Economics, University of Michigan

Professor of Health Economics, University of York