Affordability of Long-term Care Systems in Times of Rapid Population Ageing

Economic

Summary:

This column compares the impact of diverse social protection measures across 32 OECD and EU countries on poverty rates and out-of-pocket expenses among older adults with care needs.

Population ageing is accelerating rapidly. Across OECD countries, the share of people aged 65+ has doubled from less than 9% in 1960 to 18% as of 2021 (OECD 2023) and is expected to reach 27% by 2050, increasing demand for long-term care services (Kotschy and Bloom 2022). At the same time, there is growing public pressure to reduce the care burden on families and individuals in favour of government funding and the provision of long-term care (Ilinca and Simmons 2022). Combined with the rising costs of care (OECD 2023), these trends are adding pressure to the fiscal sustainability of public long-term care systems. Ensuring the cross-country comparability of the costs and benefits of public long-term care schemes in 32 OECD and EU countries, a new OECD report compares current long-term care costs across countries and presents evidence on the effectiveness of public expenditures in alleviating the financial burden on care recipients.

Despite public support, long-term care remains unaffordable for many older people

Without sufficient public support, long-term care services are unaffordable for most older people. The average long-term care cost for individuals with low care needs, already 42% of the median income of older people (without public support), could reach 259% for those with severe care needs. Even though all OECD countries included in the report cover at least part of the cost through benefit schemes, individuals’ out-of-pocket expenses remain substantial, particularly for older people with severe needs (see Figure 1). On average, these costs represent over 70% of the median income of older people across OECD countries, even after accounting for public social protection. However, there is significant variation among the analysed countries. In the Nordic countries such as Finland, Iceland, and Denmark, out-of-pocket costs remain below 5% of median income, while in Italy and Estonia, these costs exceed 150%, effectively pushing older adults into poverty or leaving them with unmet care needs.

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High out-of-pocket expenses for long-term care significantly increase the poverty risk among older people (see Figure 2). On average, poverty rates for older adults with long-term care needs are 31 percentage points higher than for the general older population. The long-term care systems in Scandinavian countries, Luxembourg, and the Netherlands are among the most effective at reducing poverty risks linked to care expenses. In contrast, the poverty risk among long-term care recipients in Italy and Spain is much higher – more than 60 percentage points – in comparison to the total older population (aged 65+).

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Policy options to tackle growing demand for long-term care services

Rising costs, growing demand, and low productivity gains are placing substantial financial pressure on public long-term care systems. The OECD report analyses how this financial pressure could impact future long-term care spending under different scenarios (see Figure 3). In the first scenario (the ‘ageing scenario’) – whereby countries maintain the current level of support and the existing share of older adults with needs receiving long-term care – expenditures are projected to rise by an average of 91% by 2050. In the second scenario (the ‘high coverage scenario’), which assumes an increase to 60% of the share of older adults with care needs, expenditures would increase by 144%. Finally, in the ‘no copayment scenario’, out-of-pocket expenses are fully eliminated and long-term care expenditures grow by more than 300%.

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While population ageing is unavoidable, countries can help older populations adopt healthier lifestyles and introduce preventive measures to reduce dependency and health issues for as long as possible. Programmes like home visits in Scandinavian countries have proven to be cost-effective by increasing the number of active, healthy years (Kronborg et al. 2006). Such policies could reduce future long-term care spending by 13% compared to the baseline high coverage scenario (see healthy ageing scenario, Figure 3).

Although labour productivity growth in the long-term care sector remains low or even negative (OECD 2023), emerging technologies could be put to better use to help reduce overall care costs. OECD simulations suggest that if productivity growth in long-term care reached even half the average productivity growth of the overall economy, long-term care spending by 2050 could be 13% lower than in the baseline high coverage scenario (see productivity growth scenario, Figure 3). New user-centred support tools, such as environmental and wearable sensors, can assist long-term care providers in monitoring, positioning, and recognising physical movements (Bibbò et al. 2022). Virtual carers also play an increasingly important role, supporting both care recipients and providers in managing conditions like diabetes, depression, and heart failure (Bin Sawad et al. 2022).

While taxes are the most common source of long-term care funding, some countries have introduced public long-term care insurance to achieve better risk-sharing and address transparency challenges. For example, Slovenia introduced a long-term care insurance scheme in 2023, aiming to create a more comprehensive system, improve funding transparency, and avoid increasing public-sector debt.

With limited public resources, countries may prioritise supporting individuals most in need: those with low incomes and those with severe long-term care needs. An example of such a policy would be capping out-of-pocket expenses at 60%, 40%, and 20% of care costs for older adults with low, moderate, and severe needs, respectively. Our simulation reveals that such a needs-testing approach could be an attractive option for countries like Latvia, Malta, and Hungary. In these cases, the simulation indicates that this strategy could reduce overall public long-term care spending without significantly increasing the poverty risk among recipients (OECD 2024).

Furthermore, more progressive cost-sharing across the income distribution can help manage long-term care budgets and limit poverty among care recipients. Almost 90% of OECD and EU countries analysed in the report apply some form of income-testing to define levels of support, but individuals with low incomes still face a significantly higher risk of poverty. Optimising income-testing to focus on vulnerable populations can further improve outcomes. In about one-third of the analysed OECD countries, this approach leads to lower long-term care spending and reduces poverty among care recipients, or at least contains spending without increasing poverty rates (OECD 2024).

Conclusion

Achieving fair access to long-term care and the fiscal sustainability of public systems amid population ageing is a challenge for policymakers. The OECD analysis reveals that existing systems are often unaffordable and badly targeted: there is substantial room for improvement and reforms. The promotion of healthy ageing, proactive use of new technologies to elevate the care sector’s productivity, revision of eligibility rules to enable more targeted and inclusive coverage, diversification of funding sources, and optimisation of income-testing are all viable policy options. Each is worth exploring in the search for resilient long-term care systems that can withstand demographic shifts and evolving societal needs.

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