Challenges for financing and providing long-term-care in Eastern Europe

Johannes Koettl and Sarbani ChakrabortyEurope and Central Asia Regions – Human Development Sector

BackgroundWorld Bank prepared report on LTC challenges

for the New Member States of the EU and Croatia

Focus onDemographic transition in Eastern Europe and

implications for LTCCurrent LTC systems (financing, provision of

services, regulations) in Bulgaria, Croatia, Latvia, and Poland

Lessons learned from OECD countries (Austria, Germany, France, United States)

Key messages1. LTC sector has to prepare for future demographic

“shocks”

2. Substantial future fiscal pressure from LTC expenditures in ECA countries

3. Policy implicationsi) Urgent need to mobilize financing for future LTC

expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits

1. Prepare for demographic shocks

Population is aging rapidly, yet not at a constant rate, but in waves

These waves will lead to sudden increases in the number of dependent people

There will be much less healthy people, and more and more dependent people

Who will then care for the dependent?

There will be much less young people, and more and more old people

Who will then pay the care for the dependent?

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2010

Source: Eurostat

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2020

Source: Eurostat

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2030

Source: Eurostat

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2040

Source: Eurostat

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2050

Source: Eurostat

Example: PolandPolish society is aging rapidly, yet not at a

constant rate, but in waves: 2060

Source: Eurostat

Sudden increase of 75+ age group during 2020s and after

2045 Annual population growth rate by age group

Source: Eurostat

Dependency level is highest among older age groups…

Dependency level by age group for Poland

Source: SILC

…so demographic waves will lead to sudden increases in the number of dependent

people…

Projected annual population growth rates by dependency level in Poland

Source: World Bank staff calculations

…while the healthy population is constantly decreasing (green line)

Projected annual population growth rates by dependency level in Poland

Source: World Bank staff calculations

Who will care and who will pay?

There will be much less healthy people, and more and more dependent people

Who will then care for the dependent?

There will be much less people in working age, and more and more retired people

Who will then pay the care for the dependent?

Today: 11 healthy per severely dependent2060: 5 healthy per severely dependent

Projected inverse dependency ratios for Poland

Source: World Bank staff calculations

Today: 5 aged 15-64 per 65+2060: less than 2

Projected inverse dependency ratios for Poland

Source: World Bank staff calculations

Key messages1. LTC sector has to prepare for future demographic

“shocks”

2. Substantial future fiscal pressure from LTC expenditures in ECA countries

3. Policy implicationsi) Urgent need to mobilize financing for future LTC

expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits

2. Substantial future fiscal pressure from LTC expenditures in ECA

countries

Combination ofSteep expenditure increases per beneficiary in the

past (quality improvements)Expansion of formal services (larger share of

elderly consume formal services)Overall increase in number of elderly

Strong expenditure growth dynamic

Example: PolandTwo scenarios:

If expenditures per beneficiary continue to grow like between 2006 and 2008, cost explosion (pessimistic scenario)

If expenditures per beneficiary grow with GDP per capita, still considerable increase in spending (optimistic scenario)

Public expenditures per beneficiary increase strongly…

Public expenditures per beneficiary by benefit type and sector in Poland (current PLZ, 2005 to 2008)

Source: Wieckowska (2009) and own calculations

…on average more than 8% annually for in-patient LTC

Annual real growth rates of public expenditures per beneficiary by benefit type and sector in Poland (percent, 2006 to 2008)

Source: Wieckowska (2009) and own calculations

The pessimistic scenario Projected public expenditures on LTC (as share of

GDP)

Source: World Bank staff calculations

Example: PolandWhat are assumptions in optimistic scenario?

Return to strong GDP growth Likely to happen, but what if not?Expenditures per beneficiary (costs) increase with

GDP per capita UnlikelyShare of population who demand formal services

stays constant Very unlikely

Optimistic scenario seems more like minimum increase in public expenditures (over-optimistic)

Share of dependents who receive NO care in Poland more than 80 percent=> most likely to decrease strongly

Share of dependents with no or informal care, 2005

Source: EC

The optimistic scenario Projected public expenditures on LTC (as share of

GDP)

Source: World Bank staff calculations

Example: PolandWhere will Poland end up? Somewhere in

between….

In any case, sharp increase in spending during “shock” years (2020s and after 2050)

Key messages1. LTC sector has to prepare for future demographic

“shocks”

2. Substantial future fiscal pressure from LTC expenditures in ECA countries

3. Policy implicationsi) Urgent need to mobilize financing for future LTC

expenditures nowii) Control demand and costs for formal LTC services: From health to social services From institutional to community-based care From care fragmentation to care coordination From producing to purchasing LTC services From in-kind to cash benefits

3.i) Urgent need to mobilize financing for future LTC expenditures now

Risk-pooling is essential to avoid old-age poverty

Private LTC insurance has not been very successfulMarket failures (adverse selection, risk selection)Unpredictability of costs lead to high mark-ups

Large role for public sectorTax-financed (cash benefits, social assistance)Contribution financed (social security) Both are pay-as-you-go mechanisms Who will pay?

Who will pay?Today’s young can pay for tomorrow’s old…

Source: Eurostat

…but who will pay for today’s young when they are old?

Source: Eurostat

?

Increase private savings for retirement and dependency

nowIncrease savings of current working age

population for their own retirement and dependency needs

Private financial products (not LTC insurance for in-kind benefits) to insure against poverty in case of dependencyExample of FranceEnhanced annuity (life insurance payments

increases in case of dependency)Reversed mortgage

3.ii) Control demand and costs for formal LTC services

Promote healthy life-styles

From health to social services and from institutional to community-based care Channel future demand for formal LTC to more adequate and less

expensive services Away from medical care and hospital care Toward social care, especially community-based care Resist converting hospital infrastructure into inpatient LTC

infrastructure Rather, invest in community care centers that offer a wide variety

of (outpatient) care services (daycare and home-based care)

From care fragmentation to care coordination Especially between health and social sector to avoid cost shifting

at the expense of patients Joint needs assessments by inter-disciplinary teams (GP and social

worker) Scaled benefits

3.ii) Control demand and costs for formal LTC services

From producing to purchasing LTC services In the future, a much larger share of the economy will evolve

around providing care Cannot be done by public sector alone Define core competencies of the public sector The rest, buy from private market Proper regulation, accreditation, standards of care, and quality

control mechanisms Institutions and mechanisms might take time to develop In the meantime, explore potential of public-private

partnerships

From in-kind to cash benefits Puts consumer in charge Main vehicle to support (cheap) informal care Maybe easier to control public expenditures on cash benefits Explore potential of vouchers