Shying away from the issue
Wherever you look, it seems, long-term care for the elderly is a big problem that is failing to generate big action. There is plenty of awareness among academics, researchers, think-tanks and, increasingly, the public – and even politicians – but the issues get nibbled at the edges instead of being swallowed whole. Elderly care is as unpalatable as the related pensions crises that loom over governments in most westernised countries; for now it’s one of those irritations that will have to be endured until remedied tomorrow. In fairness, the solutions are complex and difficult to implement, but critics argue there is no excuse for failing to get to grips with the problems.
Sweden and Denmark, as Nordic countries, have a reputation for well ordered society with strong social support funded from public resources. How are these two nations dealing with the long-term care issues, and what contribution can financial services like pensions and long-term care insurance make now and in the future?
Sweden’s population is just under 9m, 22% of whom are aged 65-plus. By 2020 the percentage of 65-plus will be 26%, and by 2030 nearly 32% of Swedes will fall into this age band; by then the proportion of those 80-plus will have risen from 5% now to 8%. The social service and housing needs of the elderly are the responsibility of Sweden’s 289 municipalities. Care services are heavily subsidised, being funded from local taxes and state grants.
This avoidance of centralised control results in services that are more responsive to local needs. Local authorities have the ability to outsource care provision to the private sector if they choose, an opportunity that has been grasped enthusiastically by some of the right-wing municipal administrations in a quest for cost saving, new services and improvement. An investigation by the Stockholm School of Economics in 2001 found that privatised services tend to be more cost-effective than those that are municipally-run, but that care quality is broadly the same for each approach.
The Swedish minister for health and social affairs, Lars Engqvist, acknowledges that elderly care is a growing political issue. The rights of the elderly are important, and the state and local authorities need to plan together, he says. Certainly there is concern among the public about the availability of care. “The demographic bulge means we must do something. The care sector needs more staff and to reduce staff turnover,” admits Ann Jönsson at the ministry of health and social affairs. “We want to improve the perception of this sort of work among the public so that we can attract better, well-educated employees.”
Apart from involvement in care provision, the private sector does not so far figure prominently in possible solutions. A proposal for specific long-term care funding via private pension provision has been firmly rejected by the pensions minister. Nevertheless, that has not stopped the insurance industry, frustrated by the slow progress of government reforms, holding a conference on the matter last autumn, and for a handful of companies to take some initiatives in the belief that there is latent consumer demand for financial services involvement.
SEB Trygg Liv, for example, is undertaking research in this area. SEB’s Carin Kamsvåg points to demographic trends, the effect on the dependency ratio and the declining quality of care now. “We are quite certain that demand for products that help fund long-term care is there now,” she says. “Seven out of 10 people aged 55–60 are worried about the state being able to look after them, women more so than men. We think that, given the chance, many will be prepared to do something about it.”
Already there are some privately funded housing developments addressing care needs in various towns and cities. SEB Trygg Liv has collaborated with a construction company and a healthcare provider and is opening sheltered living apartments in Halmstad this autumn. Others in Stockholm, Malmö and Göteborg will follow.
But according to SEB Trygg Liv, long-term care insurance may not be the solution. Kamsvåg says that pricing is difficult because of political uncertainty and changing legislation. Furthermore, shifts in consumer attitudes mean that claim rates will never stabilise. Insurers have little appetite for pure risk products as a result of poor claims experience on health insurance.
Not surprisingly, Skandia too is trying to crack the elderly care conundrum, but is taking the long view. Niklas Birgetz, as senior care development manager, is charged with research, stimulating the elderly care debate in Sweden and raising Skandia’s profile in this area. “Skandia wants to be involved in the future,” says Birgetz. “Generating business is our long-term aim, but if Sweden wants solutions we have to start now. We are looking 20–30 years ahead. What we are doing fits with our brand value of social conscience. We believe it is our responsibility to take some steps now. People should be entitled to the peace of mind that comes from knowing there will be security in old age.”
In Denmark around 16% of the population are aged 67 or more, a proportion forecast to increase to 18% in 2020. The dependency ratio (calculated as the proportion of those aged 67-plus compared with those aged 15–66) will grow from just under 20% now, to 24% in 2020 and to 30% in 2035. The retirement age is set to drop from 67 to 65 in 2004. Like the Swedes, the Danes are dissatisfied with publicly funded care services and are looking for change; indeed, the re-structuring and the future of the welfare state has been a subject of heated debate over the last decade or so. The right-of-centre government elected in November last year has vowed to address the problem and is examining ways of introducing private sector involvement. That could start to happen as early as next year if talks with the municipalities progress smoothly.
Community services for the elderly are almost exclusively the responsibility of municipalities. There is little involvement of the private sector, although care homes run by non-profit organisations – but financed by the public purse – do exist, and some local authorities do outsource service provision. Two ideologies appear to be at work. Those local authorities opting for elements of private provision have tended to be driven by efficiency goals, whereas those running their care services in-house wish to demonstrate transparency and consistency.
Long-term care insurance (LTCI) is available in Denmark, although sales have been next to non-existent. Only one company, PFA, writes this cover and has done so for the past four years. But it looks as though the time for LTCI has come. With the government poised to make radical changes to the welfare system, Karin Kjemtrup, senior vice-president at PFA, believes its popularity is going to rise dramatically, and soon. “We believe LTC insurance will take off,” she says. “People have lost faith in public provision and are looking for change.”
PFA is in dialogue with the ministry of social affairs. Kjemtrup foresees distribution deals with the municipalities, which implies a very big market indeed. She acknowledges that getting the pricing right will be a big hurdle, at least to begin with, but rules out any financial cushioning from the government against losses; companies will have to stand on their own two feet. PFA seems to be taking this initiative entirely independently, making it very much a determined pioneer. While one or two other companies have shown some interest, the majority of the market seems indifferent to the prospect of a healthy LTCI market before long. Certainly it is a low-priority issue in the eyes of the Danish Insurance Federation.
Is this Danish optimism misplaced? Time will tell. If other European markets are anything to go by, LTCI will be very slow to take off. But then Denmark has a new right-wing government apparently determined to bring about change. Experience suggests that government commitment and action, together with financial incentives, are necessary to change cultural attitudes to something as important as elderly care in a big way.
Nevertheless, most observers will be pleased to see financial services companies in both Denmark and Sweden making strategic decisions to involve themselves in elderly care issues. The consensus world-wide is that effective reform has to involve a significant degree of private individual funding, and that elderly care funding is inextricably linked to pensions and retirement finances overall. While Denmark may just see change sooner rather than later, SEB Trygg Liv and, especially, Skandia look prepared for a serious longer-term game. Unfortunately, that’s what many politicians seem unable to do.