Comparative Analysis of Long-Term Care Systems in Four Countries

Karlsson, M. (2002). Comparative Analysis of Long-Term Care Systems in Four Countries. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-02-003

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Abstract

This paper deals with long-term care (LTC) systems in four developed countries -- Germany, Japan, Sweden, and the U.S.A. -- from an economic point of view. Since these countries have differing traditions in welfare policy, the role of the state in financing and providing LTC services differs considerably. This paper focuses on these differences and their practical consequences. Firstly, a theoretical survey is undertaken to see under what circumstances and to what degree state intervention can be justified in order to increase economic efficiency. Secondly, the LTC systems of the four countries are analyzed qualitatively in the light of economic theory. Thirdly, the systems are compared quantitatively, with the main focus on their distributional impact. Furthermore, the issue of how state intervention alters the potential benefit from buying a private LTC insurance is analyzed, as well as how the internal rate of return from a pay-as-you-go (PAYG) systems changes over time in one of the countries (Sweden). The main conclusions are as follows:

-- The design of LTC systems in the countries studied mainly follows social welfare traditions as developed in other sectors; the only exception being Japan, where a much more extensive role of the state in financing LTC has evolved over the last ten years compared to the rather modest role of the state in the Japanese economy in general.

-- The differences in design of LTC systems have substantial distributional implications. All systems are progressive and favorable to women, but there is a wide range between the countries.

-- In Sweden, the internal rate of return from a PAYG system is constantly decreasing with each cohort, but still positive for all cohorts born before 1990. The steady decline of the returns indicates that it will turn negative for later cohorts.

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