Paying for the Boomers: Long-Term Care and Intergenerational Equity

36 Pages Posted: 21 Sep 2014

See all articles by Ake Blomqvist

Ake Blomqvist

Carleton University; C.D. Howe Institute

Colin Busby

C.D. Howe Institute

Date Written: September 17, 2014

Abstract

The aging of Canada’s babyboomers is going to put significant pressure on the way in which we pay for and organize long-term care (LTC) services. The demand for LTC services remains relatively small for the first decade of life after age 65, but rises sharply around the time people turn 80. Looking closely at the demographic projections, once the first boomer cohort enters into the 80 and older group – roughly around 2030 – the demand for LTC will sharply increase. Under current systems of delivering and paying for long-term care, we estimate that the cost of long-term care services will roughly triple over the next 40 years, growing from around $69 billion in 2014 to around $188 billion in 2050, in inflation-adjusted dollars. Public LTC costs are estimated to grow from around $24 billion in 2014 to around $71 billion in 2050, and the private burden is anticipated to be even higher, growing from around $44 billion to about $116 billion over the same period of time. Policymakers must therefore act soon to improve the way we finance long-term care. The apparently simple solution of expanding Canada’s public health system to cover all LTC costs should be rejected due to the additional stress that the expected growth in costs would put on future budgets and taxpayers of working age. The number of seniors relative to the working-age population is rapidly increasing and the economic growth rate appears to be falling, meaning today’s working-age generations likely will not have incomes grow fast enough to offset the programs’ rising public costs. Intergenerational equity concerns should factor into decisions to expand the public share of LTC costs. A multi-pronged solution to better target means-tested public subsidies and allow growth of private insurance and savings should be pursued instead. Policymakers could do so in a manner that assures LTC access for those who need it but can’t afford it. And because many Canadians today believe, somewhat falsely, that governments will pay for their future LTC costs, reforms must encourage individuals to take on a greater responsibility to pay for their own future LTC. It’s important to strike the right balance between the costs to government or taxpayers and those that can be reasonably borne by individuals. Provincial governments should proactively formulate a consistent set of means tests to determine what patients will have to pay and appropriate subsidies if and when they no longer have the means to do so. 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 from individuals who want to secure their assets for future generations. Policymakers, meanwhile, face many urgent issues with respect to guaranteeing LTC access for those who cannot pay for it themselves, including waiting lists and the imbalance between institutional and home-based care, which should be another priority in the coming years.

Keywords: Health Policy, Long-term Care

JEL Classification: I10, I13, I18

Suggested Citation

Blomqvist, Ake and Busby, Colin, Paying for the Boomers: Long-Term Care and Intergenerational Equity (September 17, 2014). C.D. Howe Institute Commentary 415. Available at SSRN: https://ssrn.com/abstract=2498537 or http://dx.doi.org/10.2139/ssrn.2498537

Ake Blomqvist

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Colin Busby (Contact Author)

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

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