Last year’s report of the Royal Commission on Long Term Care (1) and the expected Government response have prompted fresh interest in the debate on how to fund long-term care. To inform this debate the Personal Social Services Research Unit (PSSRU) has conducted a study, funded by the Department of Health, of long-term care demand and finance. This has involved the construction of a computer model to make projections of likely demand and expenditures to 2031.

This article describes the model of long-term care demand and expenditure developed by the PSSRU. It then presents some of the results obtained and sensitivity analysis around them

Comas-Herrera, Adelina

Darton, Robin

Davies, Bleddyn P.

Pickard, Linda

Wittenberg, Raphael

English

Kent Academic Repository

Financing Long-Term Care for ElderlyPeopleRaphael Wittenberg, Adelina Comas-Herrera,Linda Pickard, Robin Darton and BleddynDaviesDiscussion Paper 1680July 2000Not publicly available1DRAFT ARTICLE FOR THE BSG CONFERENCEFINANCING LONG-TERM CAREFOR ELDERLY PEOPLERaphael Wittenberg, Adelina Comas-Herrera, Linda Pickard,Robin Darton, Bleddyn DaviesPERSONAL SOCIAL SERVICES RESEARCH UNIT,LONDON SCHOOL OF ECONOMICS25 July 20002FINANCING LONG-TERM CARE FOR ELDERLY PEOPLERaphael Wittenberg, Adelina Comas-Herrera, Linda Pickard,Robin Darton, and Bleddyn DaviesPersonal Social Services Research Unit, London School of EconomicsINTRODUCTIONLast year’s report of the Royal Commission on Long Term Care (1) and the expectedGovernment response have prompted fresh interest in the debate on how to fund long-termcare. To inform this debate the Personal Social Services Research Unit (PSSRU) hasconducted a study, funded by the Department of Health, of long-term care demand andfinance. This has involved the construction of a computer model to make projections oflikely demand and expenditures to 2031.This article describes the model of long-term care demand and expenditure developed by thePSSRU. It then presents some of the results obtained and sensitivity analysis around them.STRUCTURE OF THE PSSRU MODELThe PSSRU long-term care model aims to make projections for England to 2031 of two keyvariables: the likely level of demand for long-term care services for elderly people and thecosts associated with meeting this demand. A variant that could produce projections for theUK to 2051 was developed and used extensively to provide projections for the RoyalCommission. The model is described in detail in Wittenberg et al. (2).The model is cell-based (a macro-simulation model) and takes the form of a spreadsheet. Itconsists of four main parts. The first part estimates the numbers of elderly people with differentlevels of dependency by age group, gender, household type and housing tenure. It starts withprojections of the elderly population by gender and 5-year age band. It currently uses theGovernment Actuary’s Department (GAD) 1998-based projections (3). The effect of usingvariant projections can be investigated as discussed below. The projected population by genderand age band is divided into four dependency groups, based on ability to perform activities ofdaily living (ADLs) and instrumental activities of daily living (IADLs). Use was made ofinformation from the General Household Survey (GHS) in respect of those in privatehouseholds. Department of Health data was used on the numbers of people in institutional care.The projected population by gender, age band and dependency is further divided byhousehold type. GAD 1996-based marital status projections were used to divide theprojected population into those who will be married or cohabiting and those who will besingle and not cohabiting. GHS data were then used to divide the former group into thoseliving with their partner only and those living in a larger household and the latter group intothose living alone and those with others. GHS data and projections by the Anchor HousingTrust (4) were then also used to divide the projected population by housing tenure. Thisenables projections to be made of the numbers of dependent elderly people by age, gender,household type and housing tenure.3The second part of the model then estimates the levels of long-term care services demandedby type of service under current patterns of utilisation. It covers informal care by family andfriends, formal non-residential care and institutional care. Informal help for dependentelderly people is included through analysis of GHS data on the basis of a relationshipbetween receipt of informal care and dependency and household type. Receipt of formalnon-residential services is also based on GHS analysis of the relationship between receipt ofeach service and age, dependency, household type, housing tenure and receipt of informalhelp. Institutionalisation is treated as a function of age, gender and household type, usingDepartment of Health (5) and PSSRU survey (6) data. This enables projections to beprepared of the numbers of elderly recipients of long-term care services.The third part of the model estimates total health and social services expenditure bymultiplying projected amounts of services demanded by the unit costs of services (7).Finally, in the fourth part, expenditure is allocated to each funding source: health careexpenditure to the NHS and social care expenditure is divided between social services andelderly people themselves (using data from a PSSRU survey of residential care (6) andDepartment of Health data). This enables projections to be made of public and privatehealth and social services long-term care expenditures for elderly people.BASE CASEThis acts as a reference case against which the effect of changes in assumptions can beinvestigated. It takes account of expected changes in factors exogenous to long-term carepolicy, such as demographic trends and trends in housing tenure. It holds constant factorsendogenous to long-term care policy such as patterns of care and the funding system. Thekey assumptions of the base case are as follows:- the number of elderly people by age, gender and marital status will change in line withthe GAD 1998-based projections;- age/gender specific dependency rates remain unchanged;- an unchanged relationship between receipt of services and age, dependency andhousehold type; and- an increase in unit costs of 1% per year for social care and 1.5% per year for health carein real terms.In the following sections, some key assumptions of the base case are allowed to vary in turn:life expectancy, dependency, household composition and real rises in care costs. The table atthe end of the paper sets out the different projections obtained using the model by changingone assumption at a time.ASSUMPTIONS ABOUT LIFE EXPECTANCYPast population projections have tended to underestimate life expectancy, resulting in theunderestimation of the numbers of very elderly people (8). The new 1998-based populationprojections (3) are substantially different than the 1996-based projections. For example,according to the 1996-based projections, the numbers of people aged 65 and over willincrease by 57% between 1996 and 2031, and the numbers of people aged 85 and over by75%. According to the 1998-based projections, however, the corresponding increases will be60% and 88%.4The GAD’s higher and lower life expectancy variants to the 1998-based principal populationprojections have also been tested. The high life expectancy variant assumes that mortalityrates will be falling by 1% per year by 2032 compared with 0.5% in the principal projection.The low life expectancy variant assumes mortality rates will be constant by 2032.The first part of the table ilustrates the impact of GAD’s alternative assumptions. It shows that the numbers of dependent elderly people would increase by 54% under the lowexpectancy variant and 70% under the high life expectancy, compared to 62% under theprincipal projection (base case). Overall expenditure is projected to increase by 148% underthe principal projection, by 133% under the low life expectancy assumption and by 162%under high life expectancy.ASSUMPTIONS ABOUT FUNCTIONAL DEPENDENCYThe model uses as a measure of dependency the ability to perform activities of daily living(ADLs) and instrumental activities of daily living (IADLs). The elderly population wasdivided into four dependency categories: no problems with ADLs or IADLs, problems withIADLs but not with ADLs, problems with one ADL and, finally, problems with two or moreADLs or being in an institution.Information from the 1994/5 GHS was used to breakdown the private household populationinto these four dependency groups. All those who reported either difficulty in conductingthese tasks or inability to do so without help were regarded as having dependency. It wouldhave been desirable to take account of cognitive impairment as well but the GHS does notinclude questions about it.Information on the numbers of elderly people in residential, nursing home and long-stayhospital care were obtained from the Department of Health (5). The institutional populationwere combined with the most dependent private household elderly population. Theproportion of the population who are dependent rises with age, from less than 20% of thoseaged 65 to 69 to over 50% of men and over 75% of women aged 85 and over. Theproportion with dependency is higher for women than for men in each age band.There are different views about whether age-specific dependency rates can be expected to rise,fall or remain broadly constant in the future (9, 10). Constant age-specific dependency ratesmay be regarded as a neutral assumption. Yet, if the age-specific dependency rates remainconstant while life expectancy rises, the number of years with dependency will rise as well asthe number of years without dependency. A less pessimistic scenario for future dependencywould be to assume that, as life expectancy rises, the number of years without dependency riseby the same amount and the number of years with dependency remains constant. A scenario onthese lines was developed by Wiener et al. at the Brookings Institution (11). Their scenarioinvolves moving the age-specific dependency rate for each five year age-band upwards by fiveyears in order to match a five year increase in life expectancy. This involves an assumptionthat, for example, people aged 70 years in 2031 will have the same probability of beingdependent as those aged 65 in 1998.The summary table presents the impact of three alternative assumptions about trends inage/gender-specific dependency rates: rates increasing by 1% per year, rates decreasing by1% per year, and the Brookings scenario. It shows that the numbers of dependent elderly5people would increase by 14% if dependency rates decreased by 1% per year or under theBrookings scenario, by 125% if rates rose by 1%, and by 62% with constant rates (basecase). Overall expenditure is projected to increase by 84% between 1996 and 2031 withrates falling by 1% per year, by 73% under the Brookings scenario and by 222% with ratesrising by 1% per year, compared to 148% with constant dependency rates. The impact of theBrookings scenario is similar to that of dependency rates falling by 1% per year.ASSUMPTIONS ABOUT HOUSEHOLD TYPEThe projected elderly population were, as mentioned above, divided into four householdtypes: living alone, single living with others, married/cohabiting living with partner only,married/cohabiting living with partner and others. The base case of the model holds constantthe proportion of single elderly people who are projected to live alone. As the proportion ofelderly people who live with their children has been falling, it seems possible that theproportion of single elderly people living with others will fall. A scenario was tested inwhich this proportion was assumed to halve, from around 20% currently to around 10% in2031. This scenario would increase considerably the number of people projected to livealone in 2031. Yet, overall expenditure would increase by 154% under this scenario,compared to 148% under the base case.ASSUMPTIONS ABOUT REAL RISES IN CARE COSTSExpenditure projections are inevitably sensitive to assumptions about real rises in the unitcosts of care, such as the cost of an hour’s home care or a community nurse visit. If the unitcosts of care remained constant in real terms, projected expenditure in 2031 would be only61% higher than in 1996, as against 148% higher under the base case assumption (of unitcosts rising by 1% per year for social care and 1.5% for health care). If, however, unit costsincreased by 1% per year faster than under the base case, projected expenditure in 2031would be 249% higher than in 1996. This shows that expenditure projections are arguablyeven more sensitive to assumptions about rises in real unit costs than to assumptions thataffect the future volume of services demanded, such as future mortality, dependency andhousehold composition rates.DISCUSSIONThese projections show that future demand for long-term care is sensitive to assumptionsabout future mortality, dependency rates and, to a much lesser extent, householdcomposition. Projections of future expenditure are also sensitive to assumptions about realrises in the unit costs of care.The projections presented here assume an unchanged relationship between age, gender,dependency, household type and housing tenure and receipt of care. No allowance has beenmade for changes in public expectations about quality, range or level of care or for changesin policy and practice concerning patterns of care. Rising expectations, associated withrising real pensioner incomes, could clearly have a substantial impact on future demand forlong-term care.6The model assumes that the supply of long-term care will be able to expand sufficiently tomeet the projected increases in demand. There must clearly be some doubt about whetherthe supply of informal care will expand in line with increasing demand for long-term care(12). If it does not, this could have considerable implications for demand for formal services.There may also be issues about the supply of formal care. The assumption in this analysis isthat real rises in the unit costs of care of 1.5% per year for health care and 1% per year forsocial care will be sufficient to ensure the necessary supply to meet projected demand.The findings suggest that policy-makers need to plan for uncertainty in future demand forlong-term care. Future mortality and dependency rates, which are inevitably uncertain, couldexert considerable impact on demand for long-term care. Consideration of any changes tothe system for funding long-term care needs to take account of the extent of uncertaintyabout future public expenditures.AcknowledgementsThe research on which this article is based is part of the Personal Social Services ResearchUnit’s long-term programme, financed by the Department of Health. Responsibility for anyerrors and all views in this article lies with the authors. The article does not purport torepresent the views of the Department of Health. The assistance of the GovernmentActuary’s Department in providing the population projections is gratefuly acknowledged.7References1 Royal Commission on Long Term Care (1999) With Respect to Old Age: Long Term Care- Rights and Responsibilities. Cm 4192-I. The Stationery Office: London.2 Wittenberg R, Pickard L, Comas-Herrera A, Davies B and Darton R (1998) Demand forlong-term care: projections of long-term care finance for elderly people. PSSRU, Universityof Kent: Canterbury.3 Shaw C (2000) 1998-based national population projections for the United Kingdom andconstituent countries. Population Trends 99, 4-12. HMSO: London.4 Forrest R, Leather P and Pantazis C (1996) Home Ownership in Old Age: The Future ofOwner Occupation in an Ageing Society. Anchor Housing Trust: London.5 Department of Health (1996) Residential Accommodation Statistics 1996. StatisticalBulletin 1996/25. Department of Health: London.6 Netten A, Bebbington A, Darton R, Forder J and Miles K (1998) 1996 Survey of CareHomes for Elderly People: Final Report. Discussion Paper 1423/2 PSSRU, University ofKent: Canterbury.7 Netten A, Dennett J and Knight J (1998) Unit Costs of Health & Social Care 1998.PSSRU, University of Kent: Canterbury.8 Shaw C (1994) Accuracy and uncertainty of the national population projections for theUnited Kingdom. Population Trends 77, 24-32. HMSO: London.9 Bone MR, Bebbington AC, Jagger C, Morgan K, Nicholaas G (1995) HealthExpectancy and Its Uses. HMSO: London.10 Dunnell K (1995) Population Review: (2) Are we healthier? Population Trends 82, 12-18.HMSO: London.11 Wiener JM, Illston LH and Hanley RJ (1994) Sharing the Burden: Strategies for Publicand Private Long-Term Care Insurance. The Brookings Institution: Washington, D.C.12 Pickard L, Wittenberg R, Comas-Herrera A, Davies B and Darton R(2000) Relying on informal care into the next century? Informal care for elderly people inEngland to 2031. (Submitted for publication).8TABLEThe table presents in summary form some projections obtained using the PSSRU model. Thefigures relate to projected numbers of elderly people (in thousands) or projected expenditure(in billions of pounds). The figures in brackets are the projected percentage increase between1996 and 2031. Cells are left empty where the projections are the same as the base case.Projectednumbers ofelderlypeopleProjectednumberswithdependencyProjectednumber ofrecipients ofhome careProjectednumber ofpeople ininstitutionalcareProjectedtotalexpenditure(billions of £)1996 estimates 7,751 2,498 509 404 9.8Base case projectionfor 203112,432 (60%) 4,047 (62%) 755 (48%) 666 (65%) 24.3 (148%)Life Expectancy scenariosLow life expectancy 12,013 (55%) 3,855 (54%) 716 (41%) 623 (54%) 22.9 (133%)High life expectancy 12,836 (66%) 4,238 (70%) 794 (56%) 710 (76%) 25.7 (162%)Dependency scenarios1% per year decreasein dependency rates2,847 (14%) 624 (23%) 469 (16%) 18.0 (84%)1% per year increasein dependency rates5,617 (125%) 927 (82%) 885 (119%) 31.5 (222%)Brookings scenario 2,848 (14%) 629 (24%) 415 (3%) 16.9 (73%)Household composition scenariosProportion of singlepeople who live withothers halves794 (56%) 686 (70%) 24.9 (154%)Real rise in unit costs scenariosNo real rise in unitcosts15.7 (61%)Unit costs rise 1%faster than base case34.2 (249%)Source: model estimates

Financing Long-Term Care for Elderly People

Last year's report of the Royal Commission on Long Term Care (1) and the expected Government response have prompted fresh interest in the debate on how to fund long-term care. To inform this debate the Personal Social Services Research Unit (PSSRU) has conducted a study, funded by the Department of Health, of long-term care demand and finance. This has involved the construction of a computer model to make projections of likely demand and expenditures to 2031

Financing Long-Term Care for Elderly People

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