2022 Conference Presentation
Background: Nursing home residents often have to pay substantial co-payments, which lead to financial risk for people at old age. The main motivation for co-payment is that they stimulate efficient use of expensive care. However, the extent to which co-payments actually reduce the use of long-term care and how this affects the health of older individuals and their relatives is still largely unknown.
Objectives: We investigate the effects of a co-payment reform in the Dutch long-term care system, which increased co-payments for a specific group of potential nursing home residents. We analyze the effects of the increase in co-payment on nursing home use, the health of (potential) users and on income and health of family members. We also estimate the impact of the reform on financial risk.
Methods: In 2013, the proportion of financial wealth that was taken into account in the computation of the co-payment increased. As many Dutch individuals have relative little financial wealth, the reform affected the co-payments for only a subset of the population. We exploit this aspect of the reform by using a difference-in-difference design, comparing the changes in outcomes of individuals affected by the reform to those for unaffected individuals. We use administrative data on the income, wealth, and health of all Dutch older individuals and their children.
Results: The increase in the co-payment induced users to postpone permanent nursing home admissions. On average, the singles eligible for nursing home care who were affected by the reform reduced their probability of using care by 0.3 percentage points and their average use by 4.4 days. Individuals who were subjected to a larger increase in the price of nursing home care decreased their use more: for the group most affected by the reform (experiencing a price increase of 800 euros or more per month), the probability to use any nursing home care decreased by 5 percentage points. There were no overall effects on mortality or on children's care use and income. While the change in the monthly payment was modest, average lifetime payments increased substantially. The welfare loss due to the increased financial risk for potential users likely outweighs the gains associated with the reduction in use.
Discussion: Our results reveal that a reduction in care use can be achieved by relatively moderate marginal co-payments, which do not exceed users' financial means. However, even relatively low and affordable marginal changes in co-payments come at the cost of imposing a financial risk on potential users, mainly because of the small but relevant probability of having to stay in a nursing home for multiple years. Introducing a cap on lifetime co-payments might reduce the consequences on financial risk, while maintaining a financial incentive to use care efficiently for individuals at the margin of nursing home entry.