Most developed countries' populations are ageing rapidly with consequent implications for public spending on long-term care (LTC), pensions and health care. The UK dependency ratio (the number of retired people per 100 people of working age) is projected to increase from 24 today to 38 in 2040. Although substantial, the increase is lower than in many other countries. In Japan, for instance, the ratio is projected to increase from 30 today to 65 in 2040 (United Nations, 2002).

This paper compares long term care (LTC) systems in four OECD countries (UK, Japan, Sweden and Germany). In the UK, provision is means tested, so that out of pocket payments depend on levels of income, savings and assets. In Sweden, where the system is wholly tax-financed, provision is essentially free at the point of use. In Germany and Japan, provision is financed from recently introduced compulsory insurance schemes, although the details of how each scheme operates and the distributive consequences differ somewhat. The paper analyses the effects of importing the other three countries’ systems for financing LTC into the UK, focussing on both the distributive consequences and the tax burden. It finds that the German system would not be an improvement on the current UK system, because it uses a regressive method of financing. Therefore, the discussion of possible alternatives to the present UK system could be restricted to a general tax-based system as used in Sweden or the compulsory insurance system as used in Japan. The results suggest that all three systems would imply increased taxes in the UK.

This paper analyses whether GPs in a capitation system have incentives to provide quality even though health is a credence good. A model is developed where the quality of the service varies due to inherent differences between the GPs and rational patients make choices based on the outcome of treamtent. We find that it is difficult to provide appropriate incentives since the search activity of patients offsets direct effects of a change in reimbursement. Variation in the inherent ability of the GPs is good since it increases the search activity of the patients and the optimal reimbursement scheme is inversely proportional to the dispersion in types. Finally, we find that offering a menu of contracts can potentially increase social welfare above the level of a simple capitation regime, but it tends to lead to a higher variation in quality levels.

The purpose of this paper is to analyse the future sustainability of the UK system for provision of long-term care (LTC) due to changes in demography and health status among the older people. It considers how demand for LTC will evolve and to what extent there will be sufficient supply to meet demand. For formal care, this requires an estimate of how much the public purses, and hence taxpayers, will be burdened with LTC costs. For informal care, it involves estimating whether there will be enough carers if current patterns of provision were to continue. The results show that demand for long-term care will start to take off 10 years from now, and reach a peak somewhere after 2040. The research finds that the most significant increase will be in demand for informal care, where the number of recipients are projected to increase from 2.2 million today to 3.0 million in 2050. Relative increases will be similar in all care settings, amounting to between 30 and 50% compared with the levels today; however, the most noticeable increase will be in demand for formal home care, which is projected to be 60% above current levels by 2040. Total expenditure on formal long-term care will increase from £ 11 billion per year today to approximately £ 15 billion per year by 2040 (in 2001 prices). Expressed in taxation terms the effective contribution rate will increase from around 1.0% of total wages today to 1.3% in 2050. Availability of informal carers is potentially a big problem, but the extent of the problem is very sensitive to the assumptions made concerning health improvements and care-giving patterns.