Long-Term Care in Latin America and the Caribbean: Theory and Policy Considerations

This paper discusses theoretical and practical issues related to long-term care (LTC) services in Latin America. Demand for these services will rise as the region undergoes a swift demographic transition from its currently young population to a rapidly aging one, especially since the region's aging cohorts are more prone to experience a decline in their functional and physical abilities than elderly people elsewhere in the world. We argue that private insurance markets are ill-equipped to provide coverage to meet the need for LTC, while the amount of personal savings required to afford self-insurance would be prohibitively high. In Latin America, LTC may not be an immediate priority, but governments are likely to encourage the development of LTC programs as demand for them steadily grows. In particular, policymakers are probably going to focus initially on LTC programs for the poor and vulnerable, for whom affordability of LTC is a greater problem. We therefore study how basic elements of policy design affect the cost-effectiveness of LTC programs by means of a formal model. In a simple context where families can provide care themselves or hire care in a market, we find that pro-poor programs are more cost-effective when families have the option to receive cash subsidies, as the opportunity cost of providing care is lower for poor families. Moreover, the availability of in-kind and cash choices reduces program costs overall by screening families based on their opportunity cost of providing care.