Surveys show a large number of Canadians stubbornly expect governments to pay for their future long-term care costs, but we don’t have a plan in place.
Åke Blomqvist and Colin Busby, National Post |
Cash-strapped provincial governments face a monumental challenge in the years ahead: Steeply increasing long-term care (LTC) costs, resulting from Canada’s aging population. The surge in senior citizens in the coming years will bring rising demand for care to treat their frailties, whether mental, such as dementia, or physical, such as help with daily tasks. Trouble is, not enough Canadians are saving or insuring against future LTC risks, even though individuals, not governments, are responsible for the lion’s share of the costs.
Surveys show a large number of Canadians stubbornly expect governments to pay for their future long-term care costs, and only a sliver of retired Canadians have purchased LTC insurance. Yet, counting on governments to pick up the entire tab should be a non-starter. Younger generations of taxpayers will already be hard-pressed to pay for existing programs when the boomers retire. And because economic growth rates appear to be falling, today’s working-age generations will not have their incomes grow fast enough to offset the rising costs. Moreover, many boomers have enough income or assets to pay for their LTC themselves.
The need for LTC is quite limited in the first decade after retirement. The demand for home care and informal care roughly doubles between the ages of 75 and 84, but once individuals turn 85, their long-term care needs rise exponentially. The aging boomers, who are now retiring en masse, will have increased LTC needs over the next couple decades, but there will be a major crunch at the start of the 2030s, when the number of people older than 85 will skyrocket.
When we combine demographic projections with the need for support, we can project future costs. Under current systems of delivering and paying for long-term care, we estimate that the cost to government of long-term care services will roughly triple over the next 40 years, growing from $24-billion in 2014 to around $71-billion by 2050, in inflation-adjusted dollars. The private burden is anticipated to be even higher.
The implications are two-fold. First, we need to find a better way to pay for these looming costs. In our view, the apparently simple solution of expanding Canada’s system of public funding of health care to cover all LTC costs would place an intolerable stress on future budgets and taxpayers of working age. Instead, a multi-pronged solution to better target means-tested public subsidies and allow the growth of private insurance and savings should be pursued. Policymakers should do so in a manner that clearly guarantees timely LTC access for those who need it, but can’t afford it.
Second, our current methods of financing and delivering care cannot continue. Boomers aren’t going to take well to policies that continue to favour institutional care over homecare, and result in long wait lists for LTC, even for people who need it urgently but do not have the means to pay for it privately. Expensive acute-care hospital beds should not be occupied by LTC patients, just because there are no places for them in an LTC facility, or personal support workers who can look after them in their own homes.
While Canadian politicians have remained largely silent on these issues, other Western countries have been studying them intently.
Delivering LTC benefits in cash, as opposed to in-kind, encourages care at the location where people want it
France has a unique public-private long-term care financing structure. The public subsidy for LTC is designed for those aged 60 and up, with cash benefits graduated according to the recipient’s income and level of disability. Some private insurers piggy-back on this scale to determine eligibility for supplementary insurance benefits, and a large private LTC insurance market exists with about three million policy holders.
Delivering LTC benefits in cash, as opposed to in-kind, encourages care at the location where people want it. It also creates competition among providers, which adds value for the consumer. It is also a good idea to encourage informal care, by offering subsidies to those who are cared for by a spouse or child.
As a first step, Canadian provinces should create a consistent set of means-testing rules that specify the maximum charges that patients have to pay for subsidized LTC, in institutions or at home, and how the charges will be reduced for those with low incomes. Clear and widely publicized rules of this kind would go a long way to help boost personal savings for LTC and increase the demand for insurance.
In the future, the means-tested approach could be transformed into a voucher model, like in France, to better match LTC services with demand. Public contributions to LTC costs would be predictable and private insurance can grow around it. Further, cash benefits would guarantee access more effectively than the current system, with its long wait lists and bias toward institutional care.
Aging boomers will force long-term care costs to rise. Policymakers would be wise not to delay reforms and risk facing fewer options once boomers begin to collectively flex their political muscle.