The Rise in Old-Age Longevity and the Market for Long-Term Care

Abstract

In many countries around the world, the de- mographic transition into reduced fertility and mortality has forced the private and public sec- tors to grapple with the care of rapidly aging populations. Since 1960, the share of the U.S. population above 65 years of age has grown substantially, from about 9 percent to 14 per- cent. Other developed countries have experi- enced even more rapid growth. For example, in many European nations, the elderly population accounts for nearly one-é fth of the total popu- lation, and growth in this share has been larger than in the United States over the past few decades. As the elderly population has grown, the share of GDP devoted to long-term care for the elderly has grown as well. This rapid growth has stimulated interest in the study of how pri- vate markets for long-term care function and how they are affected by various forms of pub- lic intervention. Concern about the importance of long-term care has further intensié ed, because several key market forces in the United States have com- bined to exert tremendous upward pressure on the market output of long-term care. First, the share of output that is publicly é nanced by Medicaid has grown enormously, from about 24 percent of 1971 nursing home bed-days to about 65 percent of 1991 bed-days. 1 Second, from 1920 to 1940, birth rates fell by almost 30