1. The critical items in the financing of long-term care (coverage) Prof. Dr. Peter MIHÁLYI Central European University (Budapest) Long-term care in Europe – discussing trends and relevant issues MA: IMI Project (Mainstreaming Ageing: Indicators to Monitor Implementation) 22-23 February, 2010 Budapest, HUNGARY

2. 2 Definitions for this presentation The program is 1.Age-dependent (i.e. health-related disability is not included), 2.Essentially non-medical, 3.Fully or at least partially insurance-based, 4.Mandatory, 5.No waiting time (as it was proposed by the Hungarian MoH in 2003, as a fiscal trick).

3. „Long-term Care Insurance, an Irresponsibly Conceived Idea” (in Hungarian) Published in: Egészségügyi Gazdasági Szemle, 41. ÉVF. 2003. 6. SZ. november, 15-20. o. Copies available in the conference hall.

4. 4 Question 1: What do elderly people really need?

5. 5 The questions of information asymmetry and trust Questions 2 and 3: Who knows best what elderly people really need? Whom do elderly people have confidence in? Answer: Close relatives (spouse, children and grandchildren) 1. Conjecture: The insurance coverage cannot include the option to pay for the services of close relatives.

6. 6 2. Conjecture In the absence of sufficient help from family members, institutional care (nursing home) provides the broadest coverage, even if it is known that this is the most expensive solution.

7. 7 Question 3: How to start the new system? 1.Gainfully employed citizens have to pay, irrespective to age. 2.Mandatory payment is required from everybody older than 18 years of age. 3.People already above a certain age (say +70) are exempted. 3. Conjecture: The system cannot be fully funded, it must be a pay-as-you go system.

8. 8 Question 4: Who is the beneficiary of a long-term care system? Answer: The elderly person + his/her entire family, because of the social pressure based on family ethics. This is a fundamental difference in comparison to medical care, which is almost entirely institutionalized in modern societies. The bulk of the job is done by physicians and nurses.

9. 9 4. Conjecture: It will be impossible to finance a long-term care system entirely on an insurance basis. … because the gains are likely to be randomly distributed among the insured and his/her family members.

10. 10 Pillars of the solution: 1.Increased number of children (  grandchildren) in European families, who will share the burden of nursing old-age family members. 2.Expansion of reverse mortgage schemes 3.Massive import of inexpensive labour from less developed countries. –Publicly financed nursing homes (similarly to crèches and kindergartens) for different length of stay. –Commercially available, expensive nursing homes for different length of stay.