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2012 Conference Presentation

Economics Finland

8 September 2012

Economic factors of demand for long-term care – a critical appraisal of the research literature and econometric results for Finnish data.

Eero Siljander, National Institute for Health and Welfare (THL), Finland


Long-term care (LTC) for old aged people is care for chronic sickness and disability (Norton, 2000). It can be either formal or informal care or both at the same time. The economics literature of LTC demand gives a solid contextual framework for studying and explaining observed data and strategic household behavior. Families can be seen as bargaining and production units of informal LTC care and purchasers of formal LTC services (Eisen & Sloan, 1996). Economic and socioeconomic variables are thus key determinants of institutional care decisions and demand in addition to health and functional ability status (Norton, 2000; Van Houtven & Norton, 2004, 2008; Grossman & Rand, 1974). These themes are critically reviewed literature as part of the author’s PhD.

The decision making process on formal (or institutional) and informal care is based on economics of principal-agent models and game theoretical models. Informal care as a endogenous substitute for formal care exists primarily for three broad reasons. Firstly the value of informal care stems from the direct health utility of care but also from indirect utility. Norton and Van Houtven (2004) model this in that both the parent and his child get utility from informal care and parental health status. This has become quite standard in the literature. Second there are restrictions on formal care based on public (government) budget constraints which cause excess demand of institutional care (Norton, 2000). Thirdly the relationship that characterizes a normal family plays a special role in that it can create altruistic behavior and intrinsic and extrinsic economic motives necessary for the delivery of informal care (Eisen & Mager, 1996; Frey & Meier, 2004). This is the literature on economic bequest and ex-ante gift motives (Pestieau & Sato, 2008; Zweifel, 1998, 1996). Then the following question is investigated empirically: what are the key economic demand and socio-economic need factors for institutional long-term care in Finland?

An empirical model of LTC demand is investigated by means of binary outcomes and duration models. The panel data used for estimation is a sample from the Health2000 survey. It comprises of people from the Finnish general population in risk of institutional care in the Health2000 data and estimation regard five years after baseline. The data period is 2000–2010 and sample size N=4,616 observations. The highest risks of institutional care are found among low income and education, poor health status and cognitively disabled old age people. Based on results on the ADL-variables indicate that several risk factors can be attributed to low functional ability. Health utility (15D) test scores and basic mental tests have statistically significant predictive power on admittance to institutional care. There is also evidence for higher institutional risk among the widowed or otherwise single living people.

The policy implication based on review and empirics is that more and earlier screening of potential LTC needs in health and social services is needed for prevention. The costs of LTC are on a fast rise (Häkkinen, 2008) Care at home and family caregivers’ resources should be reinforced.


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