Challenges for financing and providing long-term-care in Eastern Europe Johannes Koettl and Sarbani Chakraborty Europe and Central Asia Regions – Human Development Sector

Background World Bank prepared report on LTC challenges for the New Member States of the EU and Croatia Focus on Demographic transition in Eastern Europe and implications for LTC Current LTC systems (financing, provision of services, regulations) in Bulgaria, Croatia, Latvia, and Poland Lessons learned from OECD countries (Austria, Germany, France, United States)

Key messages 1. LTC sector has to prepare for future demographic “shocks” 2. Substantial future fiscal pressure from LTC expenditures in ECA countries 3. Policy implications  Urgent need to mobilize financing for future LTC expenditures now  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: Poland Polish society is aging rapidly, yet not at a constant rate, but in waves: 2010 Source: Eurostat

Example: Poland Polish society is aging rapidly, yet not at a constant rate, but in waves: 2020 Source: Eurostat

Example: Poland Polish society is aging rapidly, yet not at a constant rate, but in waves: 2030 Source: Eurostat

Example: Poland Polish society is aging rapidly, yet not at a constant rate, but in waves: 2040 Source: Eurostat

Example: Poland Polish society is aging rapidly, yet not at a constant rate, but in waves: 2050 Source: Eurostat

Example: Poland Polish 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 dependent 2060: 5 healthy per severely dependent Projected inverse dependency ratios for Poland Source: World Bank staff calculations

Today: 5 aged per : less than 2 Projected inverse dependency ratios for Poland Source: World Bank staff calculations

Key messages 1. LTC sector has to prepare for future demographic “shocks” 2. Substantial future fiscal pressure from LTC expenditures in ECA countries 3. Policy implications  Urgent need to mobilize financing for future LTC expenditures now  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 of Steep 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: Poland Two 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: Poland What 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  Unlikely Share 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: Poland Where will Poland end up? Somewhere in between…. In any case, sharp increase in spending during “shock” years (2020s and after 2050)

Key messages 1. LTC sector has to prepare for future demographic “shocks” 2. Substantial future fiscal pressure from LTC expenditures in ECA countries 3. Policy implications  Urgent need to mobilize financing for future LTC expenditures now  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 successful Market failures (adverse selection, risk selection) Unpredictability of costs lead to high mark-ups Large role for public sector Tax-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 now Increase 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 dependency Example of France Enhanced 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