Long-Term Care around the World
Increasing life expectancy and decreasing fertility rates have led to an aging population in the developed world, raising concerns about a growing demand for long-term care services. In Long-Term Care Around the World (NBER Working Paper 31882), researchers Jonathan Gruber, Kathleen McGarry, and Charles Hanzel explore the heterogeneity in long-term care for individuals aged 65 and older across 10 countries with varying economies and geographic locations: Canada, Denmark, England, Germany, Italy, Japan, the Netherlands, Singapore, Spain, and the United States. Despite the existing differences among these countries, they all share a common challenge: how to adequately care for a growing aging population.
Globally, as the proportion of the elderly population increases, so does the demand for and expense of long-term care.
The researchers highlight the steady rise across all countries between 1990 and 2020 in the proportion of the population aged 65 or older and the further increases expected between 2020 and 2050. They show that this growth in the older population has been accompanied by growth in spending on formal long-term care. In 2019, an average of 2.1 percent of GDP was spent on this type of care, but countries differ greatly in this amount and in the rapidity of spending increases, which ranged from approximately 11 percent in Denmark to over 200 percent in Japan between 2000 and 2019.
As the population aged 65 or older continues to grow, the need for long-term care intensifies, particularly for the oldest elderly who face the greatest likelihood of limitations with respect to activities of daily living (ADLs). On average, 76 percent of those aged 65 or older have no limitations with respect to ADLs or instrumental activities of daily living (IADL). However, this percentage drops to 42 percent among those aged 85 or older. The need for long-term care is expected to rise rapidly in the coming years, as the population aged 85 and older is growing faster than the 65-plus demographic. The researchers also note that those with limitations tend to have worse measures of depression and life satisfaction.
The researchers categorized long-term care into three types: institutional care, formal home care, and informal care. Institutional care involves full-service support of daily living activities and necessities, such as housing and medical services, in facilities like a nursing home. Formal home care is provided by paid caregivers in the elder’s home. Informal care mainly consists of unpaid care from relatives or community members. Reliance on formal home care increases with age, reflecting the greater care needs of older individuals with more ADL limitations.
The increasing aging population has led to a higher demand for care workers, a role predominantly filled by women. On average, women constitute 87 percent of formal caregivers across all countries. Although informal care is more gender-balanced, women still form the majority at 60 percent.
There is significant variation in nursing home use and staffing across countries. For example, Denmark, Japan, the Netherlands, and Germany have about 3.5–4.5 nursing home residents per 100 people aged 65 or older, compared to 2 for England and Italy. Japan and the Netherlands have roughly double the number of nursing home staff per resident compared to Germany and the US.
Formal care is expensive. The researchers estimate that in most countries, the elderly would need to deplete most of their wealth to afford just two years in a nursing home. In the US, the median annual cost of a private nursing home exceeds $100,000, greater than the income of over 90 percent of the elderly. This pattern of nursing home costs exceeding the income of even fairly wealthy older individuals exists in all countries examined except Germany and Japan. The researchers highlight that it is often the elderly with the least wealth and greatest number of limitations who require the most care, exacerbating their financial strain.
Long-term care expenses are primarily funded by the government through public programs, with the elderly and their families covering much of the remaining costs. In every country studied except Singapore, the public sector pays for at least 70 percent of formal long-term care costs. There is also a strong positive correlation between the public sector’s share of funding and total long-term care spending as a percentage of GDP, with countries that fund a greater fraction of care spending a greater portion of GDP on care.
The researchers assess the costs of informal care, considering both the opportunity costs of foregone wages and leisure time. They argue that informal care constitutes a significant portion of total long-term care not accounted for in official calculations. Their estimates suggest that informal care accounts for at least one-third of all long-term care in all countries studied and nearly half of all long-term care costs on average. The variation in informal care costs is driven by differences in wages and nursing home utilization, and the age distribution of the population.
— Leonardo Vasquez
The research reported herein was performed pursuant to grant RDR18000003 from the US Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA, any agency of the federal government, or NBER. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof. The researchers also gratefully acknowledge support for this research from the National Institute on Aging of the National Institutes of Health under grant number P30-AG012810 for support with the overall project. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.