Long-Term Care following the Great Recession in European countries

Joan Costa-Font, London School of Economics

Caregiving decisions are influenced by the availability and affordability of different types of care. Economic recessions such as the recent Great Recession stand out as experiences from which to learn about the effects of economic incentives on caregiving decisions. This article examines the influence of the economic downturn on caregiving decisions in European countries and specifically on the implementation of a widespread long-term care (LTC) reform in Spain. We find that the recession led to increased availability of informal caregivers but at the same time to reduced affordability of home and community care services. The Spanish experience reveals that the Great Recession encompassed an expansion in informal care explained by the increased uptake of caregiving allowances, which subsequently gave rise to a reform in 2012 that reduced the public subsidisation of old age care.

1. Introduction

Caregiving decisions generally involve evaluation of the needs of elderly dependent people, along with assessment of the availability and affordability of alternative forms of care. These may be provided either within the household (informal), or outside the household, such as home and community care services (HCCS) (e.g., home help, day care) and institutional care (e.g. nursing home care). Such decisions are influenced by both the availability of (unpaid) informal caregivers within the household and the affordability of community and institutional care, also known as formal and long-term care (LTC). The first type of care, or informal care, refers to unpaid care provided within the household either by the family, friends or charities. We still know little about how changes in the availability and affordability of different types of care influence caregiving decisions.

The affordability of caregiving can be directly influenced by the effects of an economic downturn. Indeed, there may be changes in economic incentives such as those influencing the employment conditions of informal carers. The availability of informal caregivers due to higher unemployment can incentivise the supply of informal care. Similarly, changes in the cost of home and institutional care due to reductions in public subsidies to pay for care (which are typically affected by public spending cuts) can alter the balance of care in a society. 

An economic downturn such as that recently experienced by European countries is likely to increase the probability of unemployment for paid caregivers and give rise to a reduction in individual wages, hence influencing the affordability and availability of care. This influence is one of the main focuses of the first part of this article, which draws on the evidence of changes in caregiving availability across a large group of European countries.

A recession leads to changes in caregiving availability, affordability and substitution.

Meanwhile, an economic downturn may produce differential effects in regional labour markets in the individual European countries given the varying social norms and regulations among them. In addition, given that economic incentives interact with prevailing social norms, it is likely that differences will arise in the effects of the recession on caregiving decisions. For instance, in countries where family caregiving is perceived as a duty, the demand for community and institutional care might be less responsive to changes in subsidies and co-payments. One might expect significant differences in the effects of recession between Northern and Southern Europe, given the different social norms of the two regions. The second part of this article focuses on the context of Spanish policy.

Spain offers unique evidence of the effect of an economic recession following implementation of a widespread long-term care (LTC) reform, expanding the subsidy for individuals in need of LTC and entailing the universalization of access to care (but not its full financing). The Spanish reform, also known as the Promotion of Personal Autonomy and Care for Dependent Individuals Bill (SAAD in Spanish), qualifies as the most significant LTC funding reform in Europe (perhaps with the exception of the Scottish reform). Furthermore, evidence from Spain is especially important because it was one of the countries hardest hit by the economic recession, and the Spanish reform was specifically affected by the austerity measures implemented in 2012, as we explain below.

Beyond the first and the second part, the structure of the article is as follows. In Section Three we discuss the influence of the economic downturn on caregiving decisions. Section Four examines the effects of the recession on the implementation of the Spanish LTC reform, and the final section offers overall conclusions. 

2. Economic recession and caregiving decisions

As population ageing forces demand for LTC upwards, the constraints households face to meet increases in demand themselves become more salient. Hence, most European countries have developed a network of home and community care services (HCCS), such as home help and day care services, to meet the demand. However, the expansion of these services is limited by the number of households that can afford them, and many European countries provide different forms of support in the form of cash allowances or publicly funded services, but this type of support often requires a significant out-of-pocket contribution by individuals themselves.

In such a context, how does economic recession affect caregiving decisions? In general, changes in labour market conditions alter the provision of care. Economic recession, by modifying the work environment, influences the choice of care. More specifically, unemployment can reduce the costs associated with supplying informal care. Economic recession can influence the availability of caregiving within the household. However, given that economic recession, like any employment shock, can influence wages, it can in turn affect caregiving substitution decisions. That is, it changes the opportunity cost of caregiving (as household income changes along with the caregiver’s wages). Finally, an economic downturn can produce wider general effects on the economic balance by tightening public sector budgets and hence giving rise to austerity measures that reduce potential subsidies for long-term care. Below we refer to each specific effect.

As far as caregiving availability is concerned, the availability of informal caregivers in the household varies with the age and gender composition of the household, fertility and employment history of family members as well as with the stability of partnerships. All of these determinants influence the supply of informal care (Costa-Font et al, 2016). When an economic shock takes place that reduces employment in an area, increased probability of unemployment among caregivers can be expected. 

As for the effect on caregiving substitution, economic recession can affect the substitution of formal and informal care. If average wages drop due to an employment shock, one would expect an increasing supply of informal caregiving. Van Houtven and Norton (2004) found that informal care substitutes formal long-term care. However, more recently, using European data, Bonsang (2009) found evidence of substitution for low-skilled care whereas no substitution was found for nursing home care. Hence, given that informal care is still the main form of long-term care provision, it seems likely that substitution of formal by informal care after an economic recession is restricted to low-skilled carers.

Finally, with regard to the effect on caregiving affordability, economic recession puts additional pressures on public sector budgets and, in turn, incentivises individuals to take advantage of any subsidies (Costa-Font et al, 2016). Many European countries offer subsidies to compensate caregivers for their forgone employment. Some countries have had to adjust their subsidies to tighter budgets either by increasing the criteria to qualify for public support in needs testing, or by means of reducing the subsidies, as we describe in Section 3.

3. Recession and caregiving in European countries

The effects of economic recession are heterogeneous across European countries because they each differ in their funding and organisation of LTC services. Indeed, it is not uncommon to observe universal public funding development in Northern and Central Europe (Germany, Netherlands, Sweden etc.) and public funding that is restricted solely to those with limited means (means tested) in the South, and in the United Kingdom and Ireland (Costa-Font and Courbage, 2011). Across most European countries, there is a reduction in the use of nursing home care (Alders et al, 2015), and instead HCCS are perceived to be less costly and they also satisfy an underlying preference among individuals towards ageing in place (Costa-Font et al, 2009).

The recession in Europe increased the availability of informal caregivers but, at the same time, it reduced the affordability of home and community care services.

System heterogeneity can by identified by examining expenditure data. Indeed, Figure 1 displays expenditure on long-term care as a proportion of GDP in a number of Western countries. The data distinguishes between purely social long-term care and health-related long term care. Overall, the Netherlands, which was the first European country to set up a public universal financing system, exhibits the highest expenditure relative to the country’s GDP (4%), followed by the four Scandinavian countries (Sweden 3%, and Norway, Denmark and Finland displaying a 2% expenditure average). Spain’s relative long-term care expenditure is below the OECD average and compares to South Korea and other Southern European countries. 

Certainly, such differences in expenditure depend on the public support that exists for long-term care along with changes in caregiving social norms which influence both the availability and the affordability of informal care. Whilst close-knit families are the norm in most Southern and Eastern European countries, Scandinavian countries exhibit weaker family ties (Costa-Font, 2010), a situation which is reflected in the reduced importance of informal care. Hence, one would expect the impact of an economic downturn on the provision of informal care to be different across countries, with the effect being stronger in countries where informal care is not usually the most common form of care.

Similarly, whilst in Southern European countries governments aim at supporting the family in the provision of informal care, in Northern European countries the support aims primarily at liberating traditional caregivers (middle-aged women) from their responsibilities and increasing female employment. Consistently, Figure 2 shows the responses to a Eurobarometer question about who should provide care to elderly people in the event of need: 49% of Greeks, 43% of Portuguese and 39% of Spaniards support family care in the same household. In contrast, 58% of Swedes, 59% of Danes, and 52% of Finns and Dutch people support external caregiving options. It seems reasonable to conclude that there are two extremes in caregiving models in Europe, namely one where care is primarily a family responsibility, and another where care responsibilities are primarily in the hands of the community.

Another source of cross-country heterogeneity lies on the ‘direct effect’ of the global economic recession, which affects not only social norms related to caregiving, but monetary incentives and public subsidies for care provision. Indeed, the effect of the recession was heterogeneous across European countries, with Southern Europe and Ireland being in the weakest positions in terms of government finances. Those countries that were hit hardest exhibited increased pressures to reduce their levels of debt and deficit, which encompassed a slowdown of public LTC subsidisation along with an increasing share of unemployed population. Figure 3 shows that whilst in Northern European countries we find an increase in expenditure trajectories, in other European regions we find evidence of stability in expenditure growth. Consistently, Costa-Font et al (2016a), using data from all European countries that make up the specific region of analysis, showed an increase in the availability of informal care after the economic downturn alongside a slight increase in the needs of the physically disabled and a reduction in personal wealth. 

Hence, on average, recession increased the availability of informal caregivers in Europe, but at the same time it reduced the affordability of HCCS. These results are consistent with the relative stability or increase in public long-term care expenditure over the course of the Great Recession.

4. Caregiving after the reform and the recession in Spain

Spain is unique insofar as it suffered a deep economic recession just after having universalized access to LTC. Long-term care before the reform had traditionally been similar to that of other Southern European countries, with means-tested public sector support. However, the SAAD Act 39/2006, of 14th December, encompassed both the universalization of the public subsidisation of HCCS along with a caregiver allowance to support the provision of informal care. Costa-Font et al (2016a) show that the uptake of caregiving allowances also involved the expansion of informal care in the Spanish context. Spain was one of the countries with the highest unemployment rates in Europe, which arguably makes caregiving allowances (in cash) more attractive. 

The recession in Spain was accompanied by an expansion of informal care explained by increased uptake of caregiving allowances which subsequently led to a reform in 2012 that reduced the public subsidisation of old age care.

Figure 4 shows a significant increase in the proportion of the population that received cash benefits, with the figure reaching and settling at around 50%.

The high proportion of the population benefiting from cash allowances gave rise to the 2012 reform that reduced the dimensions of public subsidisation. Indeed, in 2012 Spain was still one of the European countries with the highest unemployment rates and the largest public deficit (8.9% at the start of that year). Hence, as part of its budget cuts, the amount of the long-term care subsidy was slashed significantly (Royal Decree 20/2012 of 13 July 2012), as shown in Table 1. Finally, the subsidy for those receiving an equivalent cash allowance to pay for informal caregivers was reduced between 15% and 25%, according to the degree of dependency. 

5. Conclusion

This article has asserted that caregiving responds to economic incentives which are country-specific. It has also argued that economic recession such as that affecting Europe and Spain over the last decade has significant effects on caregiving decisions, increasing the availability of informal care and reducing the affordability of HCCS. However, the effect across European countries is heterogeneous. Whilst in Northern European countries relative expenditure on LTC increased, in Southern Europe it did not. In Spain, the recession led to reduced public subsidies. This partly compensated for the extensive increase in the uptake of caregiving allowances which act as an income supplement for many families that qualify for public financial support. 

6. References

Alders, P., J. Costa-Font, M. de Klerk and R. Frank (2015): “What is the impact of policy differences on nursing home utilization? The cases of Germany and the Netherlands”, Health Policy, 119(6).

Bonsang, E. (2009): “Does informal care from children to their elderly parents substitute for formal care in Europe?”, Journal of Health Economics, 28(1).

Costa-Font, J. (2010): “Family ties and the crowding out of long-term care insurance”Oxford Review of Economic Policy, 26(4).

Costa-Font, J., and C. Courbage, eds. (2011): Financing long-term care in Europe: institutions, markets and models, Basingstoke: Palgrave Macmillan.

Costa-Font, J., S. Jiménez-Martínez and C. Vilaplana-Prieto (2016a):  “Thinking of incentivizing care? The effect of demand subsidies on informal caregiving and intergenerational transfers”, Barcelona GSE Working Paper, 929, Barcelona Graduate School of Economics.

Costa-Font, J., M. Karlsson and H. Øien (2016b): “Careful in the crisis? Determinants of older people's informal care receipt in crisis-struck European countries”Health Economics, 25(S2).

Costa-Font, J., O. Mascarilla-Miró and D. Elvira (2009): “Ageing in place? An examination of elderly people housing preferences in Spain”, Urban Studies, 46(2).

Van Houtven, C.H., and E.C. Norton (2004): “Informal care and health care use of older adults”, Journal of Health Economics, 23(6).

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Joan Costa-Font, London School of Economics

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