The Impact of Demographic Change, Co-morbidity and European Care Policies on the Choice of Care Arrangement

Recent literature on long-term care looks at the substitutability of informal and professional home-based care arrangements. Other factors that influence the utilization of informal care instead of formal care have been ignored in conditional analyses so far. However, regressors that represent demographic change and the development of co-morbidity are of crucial interest to forecast the future choice between different care services. Therefore, I use SHARE data from 2004 as they contain rich information on illnesses, health limitations, and health behavior. I estimate bivariate and multivariate probit models to identify the determinants of different care arrangements, namely informal care, professional home-based care, or a combination of both types, as well as living in a nursing home. Unobserved factors that affect all forms of care arrangements simultaneously can be accounted for. Moreover, I use data on European long-term care expenditure to examine the effects that public spending has on the choice of care arrangements. Simulations of different scenarios of demographic change illustrate that the developments in frailty are decisive for the future care market structure.