Abstract
An almost ideal demand system for long-term care is estimated using data from Norway, where the split of long-term care between home care and care in nursing homes is determined by municipalities. Previous literature has barely addressed what determines municipalities’ or other organizations’ allocations of resources to the sub-sectors of long-term care. The results show that home care is a luxury, while nursing home care is a necessity with respect to total expenditures on long-term care. Municipalities respond to high unit costs for home care by reducing that type of care. Municipalities are highly responsive to variations in the need for the two types of care and seem to provide a well-functioning insurance mechanism for long-term care. In the previous empirical literature, municipalities’ role as providers of insurance against the consequences of disabilities and frailty has received scant attention.
Highlights
The population of industrialized countries is ageing
The model estimated sheds light on several important research questions in public sector decision-making: (1) How will a municipality split an increase in funds available for long-term care (LTC) between home care and nursing home care? The results show that home care will increase more than nursing home care
The positive sign carried by the coefficient affiliated with LTC expenditure implies that home care is a luxury with respect to net LTC expenditures, and nursing home care a necessity
Summary
The population of industrialized countries is ageing. In the years to come, new countries will join the club of ageing societies. In countries like the U.S and Germany, insurance-based systems play an important role, with for-profit or non-profit organizations being major actors both in paying the bills for LTC and in providing care for those insured. Under such systems, eligibility rules regulate entrance to LTC (Rahman et al, 2016). If the public sector is the main provider of LTC services, like in the UK and the Scandinavian countries, budget constraints and need assessments play an important role. Many of the issues addressed will be relevant to other countries
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