Impacts of informal caregiver availability on long-term care expenditures in OECD countries

The age distribution of all developed countries, as well as many developing countries, is shifting toward older ages (Kinsella and Velkoff 2001). Declines in fertility combined with rising longevity are expected to increase the proportion of health expenditures devoted to formal long-term care (LTC) (Spillman and Lubitz 2000). Despite the expected increase in LTC expenditure worldwide, few researchers have examined the determinants of LTC expenditure. Much of the literature on the determinants of total health expenditures in developed nations does not distinguish between acute and long-term care (Gerdtham et al. 1992; Barros 1998). Our study aims to fill the gap in the literature by exploring the effects of informal caregiver availability and generosity in public LTC funding on LTC expenditure among a subset of Organization for Economic Cooperation and Development (OECD) countries. These relatively wealthy nations collect similar aggregate data on key measures of interest, and there is substantial variation over time and across these nations in policies affecting LTC (Anderson and Hussey 2000; Organization for Economic Cooperation and Development 2003). This group of nations is therefore well-suited for a study of the consequences of alternative policies. We focus on the availability of informal caregivers, because the absence or limited availability of a spouse, child, or other informal caregiver is associated with an increased demand for formal LTC (Coughlin et al. 1992; Miller and Weissert 2000). Informal care, for the purposes of our study, is care provided without payment. One key distinction is that informal care is a much better substitute for LTC than it is for acute medical care. Demographic, economic, and social factors have obvious and large effects on informal caregiver availability (Miller and Weissert 2000). For instance, if female longevity increases more rapidly than male longevity, women can expect to spend more years in widowhood, without the support of a spouse, leading to greater risk of needing formal LTC (Lakdawalla and Philipson 1999). Similarly, rising divorce rates increase the likelihood of living alone in industrialized countries (Kinsella and Velkoff 2001). Also, as the female labor force participation rate rises or close relatives live farther away, an elderly patient is less able to rely upon an adult child for informal care in OECD countries (Organization for Economic Cooperation and Development 1994). Our study also focuses on generosity of public funding for LTC through direct government subsidies or through public insurance coverage for formal LTC. More generous public support reduces the price of formal LTC in both absolute terms and relative to the value, or the shadow price, of informal care (Coughlin et al. 1992). Consequently, a public subsidy for formal LTC increases demand for it, even when an informal caregiver is available (Coughlin et al. 1992). Despite this logic, the literature on the effect of public funding on health expenditure is mixed. Some studies suggest that increased formal home care due to generous public funding does not substitute for informal care, but rather supplements or complements it (Kemper 1988; Picone and Wilson 1999). Other studies find a substitution effect (Ettner 1994). While some authors find that increased use of formal home care reduces inpatient LTC (Ettner 1994; Picone and Wilson 1999), other studies report the opposite (Kemper 1988). In the U.S. National Long Term Care Demonstration, additional community care costs were not offset by reductions in inpatient LTC cost (Kemper 1988). Nevertheless, the benefits of formal LTC may outweigh costs if all benefits, including those that accrue over a long time period and to informal caregivers, are counted (Schulz and Beach 1999). Two explanations for the discrepant findings in the literature are that the studies measure outcomes differently, and that they focus on different study populations. Cross-national time-series data from this set of OECD countries offer at least three advantages for studying the effects of demographic and policy changes on formal LTC use. Our dataset enables us to examine the long-term associations between LTC expenditure growth rates and their determinants over a period of at least a decade. Available nationally representative individual-level data, in contrast, typically offer a much shorter period of follow-up, so the effects of social and demographic change over time are likely to be too small to detect. Second, in this dataset there is substantial variation in informal caregiver availability and public funding for LTC, both across countries and across time, which would not be typical in time-series data set in any one country. Third, confounding variation in access to other services that affect the demand for LTC, such as acute and subacute medical care, is smaller in the selected sample of OECD countries than in a broader international sample (Organization for Economic Cooperation and Development 2003). For instance, there is only minimal variation in access to Alzheimers' disease medications and stroke rehabilitation services—two important determinants of LTC demand. The purpose of our study is to answer the following questions: (1) To what extent does the availability of an informal family caregiver reduce the formal LTC expenditure? (2) Does generous public funding for LTC increase LTC expenditure growth rates? (3) Are the determinants of LTC utilization similar across nations and over time?