International conference on the policies and regulations governing the costs of health care and long

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International conference on the policies and
regulations governing the costs of health care
and long-term care of the elderly, Hitotsubashi
University Tokyo, 2009

• Sustainability of long-term care financing in the
  Netherlands
• January 15, 2009
• Erik Schut, Erasmus University Rotterdam
• Bernard van den Berg, VU University Amsterdam

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Outline presentation

• Background and features of public LTC insurance
  in the Netherlands
• Growth of LTC expenditure 1985-2005
• Cost containment policies
• Effects of radical policy change in 2000
• Projections of future LTC expenditure
• Proposal to reform LTC financing

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Background public LTC insurance

• 1968 Netherlands first country to introduce
  universal mandatory LTC insurance (AWBZ)
• Several other countries followed since the 1990s
• Germany (1995), Luxembourg (1999), Japan (2000)
• Increasingly comprehensive LTC coverage
• Initially
• nursing home care
• institutionalized care for the mentally
  handicapped
• hospital admissions exceeding one year.
• Expansion over time
• home health care (1980)
• mental health care (in 1982)
• family care (1989)
• residential care for the elderly (1997)

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Reasons for universal LTC insurance

• Financing LTC was highly fragmented and could not
  provide sufficient access to LTC services
• Growing demand for LTC services
• Strong economic growth during the 1960s
• No substantial demand for private LTC insurance
• Expanding social insurance for curative services
  was no option since it covered only 65 of
  population universal insurance was needed to
  broaden the funding basis to higher income groups

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Main features of LTC-insurance

• Mandatory for entire population (16 million)
• Income-related contributions
• 2008 12.15 of taxable income (income threshold
  31,589 euro per year)
• Income-related co-payments
• max 1800 euro per month for institutional care
• Legal entitlements defined by 6 functional
  categories
• Administered by regional care offices, mandated
  by health insurers
• Needs assessment by national, independent
  organization (CIZ)
• For non-institutional care choice between
  service benefits and cash benefits (personal
  care budgets)

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Funding of public LTC insurance
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Entitlements 6 functional categories

• Personal care e.g. help with taking a shower,
  bed baths, dressing, shaving, skin care, going to
  the toilet, eating and drinking.
• Nursing e.g. dressing wounds, giving injections,
  advising on how to cope with illness, showing
  clients how to self-inject
• Supportive guidance e.g. helping the client
  organize his/her day and manage his/her life
  better, as well as day-care or provision of
  daytime activities
• Activating guidance e.g. talking to the client
  to help him modify his behavior or learn new
  forms of behavior in cases where behavioral or
  psychological problems exist
• Treatment e.g. care in connection with an
  ailment, such as serious absent mindedness
• Accommodation institutional care

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Main groups of LTC-insurance beneficiaries
Excluding about 90,000 LTC-users with a
personal care budget (expenditure 1,3 billion
euro)
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LTC expenditure growth

• Universal and generous public insurance
  facilitated strong growth of LTC-services and
  public LTC-expenditure
• Result high LTC expenditure relative to the age
  composition of the population (about OECD
  average)

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Cross-country correlation betweenageing and
LTC-expenditure
Narrow LTC definition comprising primarily
elderly care Source OECD 2005
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Cost containment policies

• To control the growth of LTC expenditure cost
  containment policies were introduced in the 1980s
• regulation of supply (building license)
• tight budgeting of LTC-providers
• As a result, the proportion of GDP spent on LTC
  remained more or less stable around 3.5 from
  1985 - 2000

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Percentage of GDP spent on LTC
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LTC expenditure growth by category, 1985-2005

• Real expenditure growth exceeded annual GDP
  growth (average 2.7) for all LTC-categories
  except for residential elderly care

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LTC production growth by category, 1985-2005

• Particularly since 1990s home health care is
  substituted for residential elderly care

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Index of real prices of LTC services, 1985-2005

• Real prices of LTC services steadily increase,
  except for home health services since 1996

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Labor productivity for LTC services, 1985-2005

• Trends in labor productivity for all LTC services
  and home health services diverge since 1996
• Explanations for increasing labor productivity
  home health care
• Relative decline in administrative and
  managerial personnel
• Introduction of benchmarking and time management
  (stopwatch care)

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Composition of real price change, 1985-2005

• For all LTC categories, except for home health
  care, an annual decline in labor productivity
  (0.3) reflecting Baumols disease
  contributes to an increase of the real price of
  LTC-services

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Radical change in LTC policy in 2000

• In 2000 radical policy change from tight budget
  controls toward retrospective reimbursement
• Reasons
• Increasing waiting lists
• Growing public dissatisfaction about quality and
  inflexibility of public LTC services
• Court decisions that waiting lists were in
  conflict with right to care following from the
  entitlements of public LTC insurance

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Effects of radical policy change, 2000-2003

• Main effects
• waiting lists decrease
• Cost explosion 2000-2003

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In 2004 return to cost control policies

• Policy measures to control fast increasing public
  LTC
• expenditure since 2004
• introduction of regional budgets for LTC based on
  past regional expenditure
• LTC-providers have to negotiate budgets with
  regional care offices within regional budget
  constraints
• increasing co-payments, particularly for home
  health care

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Ageing and future LTC-expenditure

• As in other countries LTC-expenditure
  especially elderly care is expected to increase
  due to an ageing population
• Ageing in the Netherlands is comparable to OECD
  average and much below Japan

Ratio of population gt65 years / population
20-64 years (x100)
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Projections of future LTC expenditure

• Nevertheless future LTC expenditure appears to
  be very sensitive to type of LTC-policy

GDP
Medium-term projection
Low expenditure scenario based on 1985-2000
LTC-policy
High expenditure scenario based on 2000-2006
LTC-policy
Source Central Planning Bureau (CPB)
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Other determinants of future LTC expenditure

• Demographic effect much stronger in Japan than
  in the Netherlands
• Healthy ageing (compression of disability)
  stronger effect in more rapidly ageing society
  like Japan
• Baumol effect (unit cost increase in line with
  wage increase) relative strong effect in
  countries with relatively high labor input like
  Netherlands
• Income elasticity LTC necessity or luxury?
• Increasing disability rates (e.g. due to
  increasing obesity) resulting in increased
  dependency
• Increased labor market participation, resulting
  in a lower availability of informal care

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Projected LTC-expenditure in NL and Japan

• In all scenarios (Oliviera Martins et al. 2006)
  projected LTC expenditure in the Netherlands
  higher than in Japan, despite a less rapidly
  society

Source Oliviera Martins et al. 2006
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Shortcomings of current LTC-policy

• Lack of incentives for cost containment, quality
  and efficiency
• Definition of entitlements is too imprecise and
  does not provide a firm basis for unambiguous
  needs assessment (resulting in high regional
  variation in needs assessment)
• Regional budget constraints are not binding
  because they can be avoided by opting for cash
  benefits (personal care budgets)
• Budgeting providers offers no incentive to
  attract extra patients by providing better
  quality (patients have to follow the money)
• Regional care offices have no incentive to
  contract efficient providers because they are not
  at risk for LTC-expenditure and have a regional
  monopoly

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Number of users of personal care budget (pgb)
Number of pgb-users (1,000)
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Reform proposal 2008

• Proposal for a structural reform of LTC insurance
  by Social and Economic Council (SER) in 2008
• Main lines
• Clear and unambiguous definition of entitlements
• Improvement of needs assessment (protocols,
  benchmarking, permanent supervision)
• Reduction of coverage by excluding cost of
  housing, short-term rehabilitation and social
  support
• Replacement of provider-based budgeting by
  client-based budgeting (money should follow the
  patient)

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Client-based budgeting

• Client-based budgets should be based on a
  classification of clients into care service
  packages (ZZPs) by the needs assessment
  organization
• A care service package describes the type and
  amount of care (number of hours)
• For each care service package a budget will be
  calculated
• Care service packages have already been developed
  for institutional care and will be used to
  calculate provider budgets from 2009
• In the future clients who a classified into a
  care service package may choose for a personal
  care budget or a provider contracted by a
  regional care office / health insurer

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Will reform lead to sustainable LTC financing?

• Success of reform crucially depends on
• Ability to delineate entitlements more precisely
• Ability to improve the accuracy of needs
  assessment
• Ability to calculate sufficiently precise
  client-based budgets (no predictable profits or
  deficits per type of client)