Department of Economics University of Bologna Italy

1. European Conference on Long-Term Care Department of Economics University of Bologna Italy The role of paid home care in elderly living arrangements decisionsMatteo Lippi Bruni, Dept. of Economics, University of BolognaCristina Ugolini, Dept. of Economics, University. of BolognaZew,Mannheim, 22 October 2005

2. Italy has the oldest population in the world: • fertility rate decline • increased life expectancy. Most LTC is still ensured by unpaid informal caregivers, but households are less and less likely to be in the condition to provide care directly. With the expected growth in the demand for LTC, there is a mounting interest in understanding the determinants of family decisions regarding elderly living arrangements (ELA). • reduction in households’ size • decline in family ties • increased women labour-force participation.

3. BACKGROUND common preferences[Kotlikoff and Morris, NBER1988; Hoerger et al., Rev Econ Stat 1996] or family bargaining [Stern, J Hum Resour 1995; Pezzin and Schone Am Econ Rev 1997; Engers and Stern, Int Econ Rev 2002]; the type of care (formal or informal) or living arrangements considered (shared housing, live independently, nursing home), role of children in the decision process, etc. The theoretical literature varies along several dimensions: The empirical literature is as varied as the theoretical one. It has been conducted with a variety of econometric methods, but displays remarkably consistent results. The great majority of existing works relates to the United States.

4. Very little is known of the Italian situation: • Results of the international literature on ELA not entirely generalisable. • The very few studies about Italy: Wolf and Pinelli, 1980; Tomassini and Wolf, 1999, suffer of poor information on disability conditions. • We examine ELA choices by Italian households using for the first time detailed information on the health conditions of the elderly person. 1 • Main focus : the role of formal caregiving when elderly people are assisted at home. • Formal vs. Informal care typically grounds on the assumption that formal care provided by paid helpers occurs exclusively when the elderly person resides in a living assisted facility. • i.e. in the traditional approach, informal and home care tend to coincide. • Claim: when a dependent person is kept at home, the choice between informal and paid care is an increasingly relevant issue. This paper builds on the existing body of research in two ways. 2

5. Social norms about filial responsibility still tend to attach a consistent amount of social stigma to the institutionalisation of the elderly. • For many Italian families, the possibility to delegate caregiving by buying services (although in most of cases exploiting the black market) • ensured a substantial reduction in out of pocket expenditures with respect to professional services • contributed significantly to reduce nursing home admission rates. Since the late 1980sItaly experienced significant migration flows from ex-socialist and African countries, mostly undocumented and illegal, with a high female component that joined the informal labour market. Two third of these women are engaged in domestic or personal care.

6. THE SURVEY The main purpose was to elicit WTP for covering LTC expenditure risk. A specific section of the questionnaire is devoted to register the existence of a disabled person aged 50 or more inside the family unit. We record a total of 279 households with an elderly dependent, 231 individuals liveat home, 48 are institutionalised. 179 receive informal home care, 52 receive paid home care Interviews drawn from across-sectional survey carried out on a sample of 1405 families of the Italian region Emilia Romagna (around 4 millions inhabitants) in year 2002. Given the available data set, we assume common preferences among family members and consider that the living arrangement decision is taken once-and-for-all.

7. THE DECISION TREE The decision process is articulated in two steps. The household decides whether to institutionalise the elderly in a living assisted facility (Residential Care, RC) or to provide care at home (Home Care, HC). For those who stay at home, the household decides whether to provide care directly (informal home care, IHC) or to hire a external person as primary caregiver (paid home care, PHC).

8. THE DATA DE characteristics Age, Sex, Lived alone LTC spell Spell of disability in years Num ADL Number of ADLs and IADLs in which DE is not self-sufficient Heavy help Public support for > 40 days (identification variable) Family characteristics House tenure family owner of the house Family income Family income in Euro (HH+ HH spouse, if present) Family size Residence Household residence influenced by the will to live close to other relatives (family ties) Universal access “everything to everybody” Need-based access “fundamental services to everybody” (experience based) Family opinions Opinion_LTC bad quality of existing LTC services Cash Care 1cash transfer even if the principal caregiver is a family member Cash Care 2 cash transfer only if there is an for caregiver external to the family

9. THE ECONOMETRIC SPECIFICATION • Bivariate probit model with sample selection (e.g. van de Ven , van Pragg, 1981 Journal of Econometrics) • i= 1….N t=1, 2 • j = RC vs HC; PHC vs.IHC • 1st Stagey1=1 if Home Care ; y1=0 if Residential Care • 2nd Stagey2=1 if Paid H C; y2=0 if Informal H C • missing information if y1=0

10. Probit model with sample selection /1

11. Probit model with sample selection /2

12. EMPIRICAL RESULTS Severity related variables increase the probability of institutionalisation but have no effect on the decision of hiring an external caregiver Age partial exception displays similar effects in the two stages Income increase both the probability of choosing residential care and formal home care (much larger marginal effect) Householdsize apparently no effect (checked for spouse/housewife etc..) Very frequent public support captures extremely severe cases (highly institutionalised) Strong family ties reduce the probability of residential care Econometric Issue H0:r=0 not rejected Separate estimations generate unbiased coefficients probit RC vs HC on the whole sample probit PHC vs IHC on the subsample where y1=1

13. Probit model /1

14. Probit model /2

15. CONCLUSIONS Assisting elderly dependent people by means of formal care is an increasingly followed strategy also when families opt for a home care solution. The determinants of formal care differ substantially if one considers PHC vs IHC instead of the more traditional choice between RC vs HC specific investigation of the issue is needed, in particular today that public policies strongly encourage home care and that the opportunity cost of informal care rise Residential care more and more likely when health deteriorates , similar trend does not hold for formal home care. Economic barriers to the access of formal care seem much more relevant in case of home care Open Issues Endogeneity problems (income, opinion variables) Further investigate the role of family composition Improve the quality of the data with ad hoc surveys