EUROPEAN PAPERS ON THE NEW WELFARE » Paper No. 11 / 2009

Document
This part of our publication presents texts which are not original. They are motivated and written under various contexts: they provide an insight on the fact that the lenghtening of the life cycle is of greater and greater concern and interest in many different directions. The counter-ageing society is an issue which needs to be perceived on the basis of a true, practical as well as theoretical, multidisciplinary approach. On the basis of this larger vision, the work, activity and research of any specialist can be better appreciated and given value within the framework of a global background of reference.

Abstract

This article takes a critical look at some weaknesses in Long Term Care (LTC) underwriting and claims protocols that developed in the UK market against a backdrop of a collapsing demand for pre-funded LTC products. Although these products have all but disappeared from the UK market, important lessons can be learned to help new entrants deal more effectively with risk management of any second generation LTC products.
Pre-funded LTC plans pay benefits on failure of Activities of Daily Living (ADL) or cognitive impairment measured against set severity criteria. Reviewable regular or lump sum premiums fund pre-selected benefit levels.
LTC insurance of this type became widely available in the UK in 1990. Towards the end of 2004, however, the main providers had withdrawn their products from sale. During this timeframe the volume of sales waxed and waned but without ever reaching the levels that might be expected in an affluent society with an ageing population.
The relative failure of this LTC concept in the UK has several causes. Amongst these are a lack of customer confidence in the investment performance of long term insurance solutions (such as mortgages and pensions) and their misjudgement of the State’s appetite to pay for the future care needs of the elderly. The product was expensive and represented a difficult sale. In practice LTC was bought by a much older cohort of lives than anticipated. Their complicated risk profile and propensity to early claim caused problems for insurers and had notable effects on their profitability.

1. Weak Underwriting Protocols

One consequence of the relative lack of demand for LTC was that lax underwriting protocols developed as companies sought to maximise new business opportunities and stimulate further sales. Pressure from the sales operation probably contributed to the under-pricing of individual risks by accommodating underwriters. Early application form questions were weak, lacking specific enquiry on memory problems for example. Medical examinations followed the template used for life insurance, thereby missing important risk details in older lives. Detection of early cognitive problems initially relied on a delayed word recall test, and underwriters were guilty of generous interpretation of test scores. Additional loadings were often insufficient as underwriters exhibited a lack of understanding of co-morbidity and the real effects of ageing.

2. Philosophy of Claims Management

It was not untypical for an LTC claims philosophy to be open and helpful. Though well meaning, such an approach was often far from robust. Perhaps because UK products were non-regulated, insurers were wary of possible criticism of unfair claims handling for elderly or vulnerable policyholders.
The effect of generous claim assessment was compounded when there was a discrepancy between claim evidence and underwriting evidence, making assessment of any deterioration in physical condition over time difficult. The style and standard of written reports made by visiting nurses and occupational therapists was inconsistent and often subjective, reflecting the examiners assumptions about ageing rather than measurable change.
Although conceived as a health care product, generous LTC claims philosophies may have stepped too far over the line of helpfulness with ex-gratia and borderline settlements a common feature. The effect was perhaps magnified once benefits became payable to claimants as cash not care. Audits of UK claims portfolios highlighted examples of overactive claims management resulting in insurers seeking ways to pay claims on a scale not supported by the premiums paid by the policyholder.
A difficulty of assessment of ADL failure at claim stage is the effect of temporary and partial failure or so called ‘good-day-bad-day’ behaviour. When faced with a combination of partial failures, a simple claims option was to admit as this appeared fair and helpful despite this action undermining the pricing of the product.
3. Policyholder Behaviour

Underlying these two aspects was the anti-selective behaviour of LTC applicants. Most UK LTC customers are in the higher socio-economic groups, both financially aware and capable of affording the relatively high cost of LTC insurance. While overt non-disclosure was found to be rare, many applicants had postponed their decision to purchase LTC for as long as possible, often until they experienced difficulty with personal care or had memory problems. Weak underwriting protocols fuelled an increase in unexpected early claims.
Once in claim for ADL failure, the health of elderly policyholders was seen to improve with regular medication and care. Those claimants with cognitive decline were observed to live far longer in claim than had been expected. The UK insurers experienced a very low level of recovery from disability whilst in claim.
4. Product Design Impact

For many, the design of the products themselves was seen as a key factor in the downturn in demand. Products were regarded as complicated and with a heavy burden of underwriting. Criticism of ADL-based claims triggers is possibly misplaced as changes in these clinically described behaviours are consistently observed as people grow old. However as claims experience undermined pricing, unpopular premium reviews further stifled new growth as consumer confidence in pre-funded LTC ebbed.

Ross Campbell is Chief Underwriter at Gen Re LifeHealth, UK and is responsible for the provision of underwriting and claims services to clients in the UK and Ireland. He is a co-author of Gen Re’s international Long Term Care Underwriting Manual.

Clinical Aspects of Long-Term Risk Management

Christopher Ball — Sat, 17 Jan 2009 20:28:28 +0000

Document
This part of our publication presents texts which are not original. They are motivated and written under various contexts: they provide an insight on the fact that the lenghtening of the life cycle is of greater and greater concern and interest in many different directions. The counter-ageing society is an issue which needs to be perceived on the basis of a true, practical as well as theoretical, multidisciplinary approach. On the basis of this larger vision, the work, activity and research of any specialist can be better appreciated and given value within the framework of a global background of reference.

1. Developing a Shared Language

The relationship between life/health underwriting and the medical profession may seem at first sight to be a simple one. However there is a complex dynamic between the two that is at its most intricate in the assessment of Long-Term Care (LTC) risk. Most of the difficulties arise in the way that the different professions know things and the need for one to adapt this knowledge to the paradigms of the other.
Medical knowledge and insurance knowledge are constructed differently. The questions asked by the insurance industry (often very obvious and straight forward) are not the questions that clinical researchers have set out to answer. Translating the knowledge is the challenge.
Developing a shared language between underwriter and physician is at the heart of growing the expertise to manage LTC risk. For the physician, this means an understanding of the product, the claims triggers, the way information is collected and presented, the risk and the processes of underwriting and claims. For the underwriter, developing an understanding of the clinical process of history-taking, examination, investigation, diagnosis treatment and management is the challenge. Whilst this is true for all life health underwriting, LTC brings its own particular issues.
Caring for elderly patients employs different ways of thinking about problems than caring for younger people. There is a greater interest in the person as whole. It is rarely enough to know that the person has chest pain after walking 100 meters and cannot get up stairs without getting breathless. This will probably be enough information for a doctor to order an echocardiogram and treat the results. Physicians looking after older people will want to know more about the person themselves and the problems that they are having with their day-to-day life.
They will want to understand the resources, both physical and psychological, that their patient has to manage the disease, and they will want to understand the impact of the problem on carers.

2. Bio-psycho-social Model

The theoretical model that underlies this thinking is the Bio-Psycho-Social model. It is not enough to know the diagnosis and severity of an illness to understand the impact that it has on a person. An arthritic knee for a person who has a desk job means that the commute to work is a bit uncomfortable; for an international fast bowler it may represent the end of a career, financial hardship and even depression. In order to measure the impact of a disease on a person’s function, a lot more has to be known about that individual.

Figure 1: The bio-psycho-social model

Understanding the different impact these different psychological, biological and social factors present in a given individual is an important part of managing the risk.

3. Functional Changes

Activities of Daily Living (ADL) are the currency of functional change. Relatively little is known at the population levels about the level of ADL failure and how it is distributed, beyond a crude association with age. Relatively little is known about the progression of ADL failure at a population level. Different studies use different definitions or range of ADLs (Rickayzen and Walsh, 2002). Studies use different definitions of impairment or disability, and so their relevance to a particular LTC product and its claims triggers has to be teased out carefully.
Much is understood about the functional impairment in individual conditions (e.g., stroke), but older adults usually have more than one condition. For younger adults without medical problems, it remains very difficult to predict the likelihood of later ADL failure.
Several important principles can be drawn from the data.
1.    Young people with ADL failure are usually stable and tend to have relatively normal life expectancies. This is because the commonest cause of problems is trauma rather than degenerative disease. There are exceptions (e.g., Multiple Sclerosis) that would need to be examined on their own terms.
2.    In the ‘young old’ or lives under age 70, ADL failure is relatively short lived as it is often the result of a single catastrophic event such as stroke, myocardial infarction or cancer. The nearer to age 60 that the person develops ADL failure, the shorter the claim is likely to be.
3.    The ‘old old’, or people over age 70, who develop ADL failure, are likely to remain in claim for a long period. They represent a survivor cohort whose problems are the result of multiple pathologies. None of these may be of great severity, but in combination cause significant functional decline. They are often ‘frail’, and it is the development of frailty that best predicts the need for LTC.

4. Frailty

Frailty is a complex concept that has been thought about in many different ways over the years. Most concepts of frailty share the idea that some bio-medical measure can predict physiological (functional) capacity. Hand grip or timed walking test (Klein et al. 2005) serve as proxy measures for the overall functioning of an individual. Other concepts of frailty stress the dependence upon others for the performance of day-to-day functioning, whilst more socially-based ideas stress the ability of the person to carry out their roles in life (father, mother, club chairman, etc.). Some include a psychological component with cognitive impairment or depression as important factors. The majority seek to represent frailty as a continuum (how frail is this person?), but a smaller number of others treat it as a dichotomy (frail or not?) (Markle-Reid and Browne, 2003).

5. ‘Good for their Age’ — Stereotypes of Ageing

The question then arises: Is this person frail, ‘good for their age’ or a poor LTC risk?
Stereotypes of ageing are difficult to displace from the underwriting process. What do you expect at 72? If the underwriter uses their day-to-day experience of the elderly as a guide, then problems may ensue. Having a relative who developed dementia in their early 60s may well colour their judgement compared to one who has experienced grandparents as active and engaged with the world. Merely being ‘good for their age’ is not a basis for an underwriting decision.
The challenge for the underwriter becomes taking a hard look at the evidence that is available to them, putting aside the stereotypical pictures of ageing and attempting to identify applicants with a degree of frailty that makes them an unacceptable LTC risk.

Christopher Ball (MRCPsych) is a consultant psychiatrist with the South London and Maudsley NHS Trust and a consulting medical officer for Gen Re LifeHealth in the UK. He was appointed to a Consultant’s post in 1993 and since 1995 has worked on a wide range of insurance and reinsurance related projects. He has written extensively on psychiatric issues both in mainstream medical academic press and for the insurance industry.

The Graying of the Great Powers – Demography and Geopolitics in the 21st Century

Richard Jackson and Neil Howe — Sat, 17 Jan 2009 19:59:01 +0000

Document
This part of our publication presents texts which are not original. They are motivated and written under various contexts: they provide an insight on the fact that the lenghtening of the life cycle is of greater and greater concern and interest in many different directions. The counter-ageing society is an issue which needs to be perceived on the basis of a true, practical as well as theoretical, multidisciplinary approach. On the basis of this larger vision, the work, activity and research of any specialist can be better appreciated and given value within the framework of a global background of reference.

Book Summary

In the spring of 2008, the Global Aging Initiative at the Center for Strategic and International Studies published the Graying of the Great Powers, an in-depth study of the geopolitical implications of ‘global aging’— the dramatic transformation in population age structures and growth rates being brought about by falling fertility and rising longevity worldwide. The viewpoint of the study is that of the United States in particular and of today’s developed countries in general. Its timeframe is roughly the next half-century, from today through 2050.
The study explains how population aging and population decline in the developed world will constrain the ability of the United States and its traditional allies to maintain national and global security. It not only assesses the direct impact of demographic trends on population numbers, economic size, and defense capabilities, but also considers how these trends may indirectly affect capabilities by altering economic performance, social temperament, and national goals. The study also looks closely at how the striking demographic changes now under way in the developing world will shape the future global security environment — and pose new threats and opportunities for today’s graying great powers.
This overview summarizes the study’s main findings under two headings: findings about the demographic transformation and findings about its geopolitical implications. It also lays out a framework for policy action.

1. Major Findings: The Demographic Transformation

1.1 The World Is Entering a Demographic Transformation of Unprecedented Dimensions

Global aging is not a transitory wave like the baby boom that many affluent countries experienced in the 1950s or the baby bust that they experienced in the 1930s. It is, instead, a fundamental demographic shift with no parallel in the history of humanity. “When this revolution has run its course,” observe aging experts Alan Pifer and Lydia Bronte, “the impact will have been at least as powerful as that of any of the great economic and social movements of the past”.²
Consider median age. Until the beginning of the twentieth century, a national median age higher than 30 was practically unheard of. As recently as 1950, no nation in the world had a median age higher than 36. Today, 8 of the 16 nations of Western Europe have a median age of 40 or higher. By 2050, 6 will have a median age of 50 or higher. So will Japan, the East Asian Tigers, and 17 of the 24 nations in Eastern Europe and the Russian sphere (see Figure 1). Or consider population growth. Throughout history, populations have usually behaved in one of two ways. They have grown steadily, or they have declined fitfully due to disease, starvation, or violence. In the coming decades, we will see something entirely new: large, low-birthrate populations that steadily contract. There are already 18 countries in the world with contracting populations. By 2050 there will be 44, the vast majority of them in Europe (see Figure 2). As historian Niall Ferguson has written, we are about to witness “the greatest sustained reduction in European population since the Black Death of the fourteenth century”.³

Figure 1: Countries Whose Median Age Is Projected to Be 50 or Over in 2050*

*Excludes countries with populations of less than 1 million.

Source: World Population Prospects (UN, 2007); and Population Projections for Taiwan Area, 2006-2051, Council for Economic Planning and Development, Taiwan, www.cepd.gov.tw/encontent/. For demographic scenario, see The Graying of the Great Powers, appendix 1, section 3.

Figure 2: Countries Projected to Have Declining Populations, by Period of the Decline’s Onset*

*Excludes countries with populations of less than 1 million.

Source: See Figure 1.

1.2 The Coming Transformation Is Both Certain and Lasting. There Is Almost No Chance That It Will Not Happen — Or That It Will Be Reversed in Our Lifetime

The public may suppose that population projections 50 years into the future are highly speculative. But in fact, demographic aging is about as close as social science ever comes to a certain forecast. Every demographer agrees that it is happening and that, absent a global catastrophe — a colliding comet or a deadly super virus — it will continue to gather momentum.
The reason is simple: Anyone over the age of 45 in the year 2050 has already been born and can therefore be counted. And though the number of younger people cannot be projected as precisely, few demographers believe that low fertility rates in the developed world will recover any time soon. Even if they do experience a strong and lasting rebound, the declining share of young (childbearing-age) adults in the population will delay the positive impact on age structure and population growth. Because of demographic momentum, population growth takes a long time to slow down. Once stopped, it also takes a long time to speed up again.

1.3 The Transformation Will Affect Different Groups of Countries at Different Times. The Regions of the World Will Become More Unalike before They Become More Alike.

As the term global aging correctly implies, nearly every country in the world is projected to experience some shift toward slower population growth and an older age structure. This does not mean, however, that the world is demographically converging. Most of today’s youngest countries (such as those in sub-Saharan Africa) are projected to experience the least aging. Most of today’s oldest countries (such as those in Europe) are projected to experience the most aging. As a result, the world will see an increasing divergence, or ‘spread,’ of demographic outcomes over the foreseeable future.
During the 1960s, 99% of the world’s population lived in nations that were growing at a rate of between +0.5% and +3.5% annually. By the 2030s, that 99% range will widen to between -1.0% and +3.5% annually. By then, most nations will be growing more slowly, and indeed many will be shrinking — but some will still be growing at a blistering pace of 3% or more per year. In the 1960s, 99% of the world’s population also lived in nations with a median age of between 15 and 36. By the 2030s, that 99% range will widen to between 18 and 54. Here again, the trend is toward increasing demographic diversity.

1.4 In the Developed World, the Transformation Will Have Sweeping Economic, Social, and Political Consequences That Could Undermine the Ability of the United States and its Traditional Allies to Maintain Security. The Consequences Can Be Divided into Three Main Types.

Changes in Demographic Size. The growth rates of the service-age population, of the working-age population, and (therefore) of the GDP in the typical developed country will all fall far beneath their historical trend and also beneath growth rates in most of the rest of the world. In many developed countries, workforces will actually shrink from one decade to the next—and GDPs may stagnate or even decline.
Changes in Economic Performance. As populations age and economic growth slows, employees may become less adaptable and mobile, innovation and entrepreneurship may decline, rates of savings and investment may fall, public-sector deficits may rise, and current account balances may turn negative. All of this threatens to impair economic performance.
Changes in Social Mood. Psychologically, older societies will become more conservative in outlook and possibly more risk-averse in electoral and leadership behavior. Elder domination of electorates will tend to lock in current public spending commitments at the expense of new priorities. Smaller family size may make the public less willing to risk scarce youth in war. Meanwhile, the rapid growth in minority populations, due to ongoing immigration and higher-than-average minority fertility, may undermine civic cohesion and foster a new diaspora politics.

1.5 In the Developing World, the Transformation Will Have More Varied Consequences — Propelling Some Countries Toward Greater Prosperity and Stability, While Giving Rise to Dangerous New Security Threats in Others

At the opportunity end of the spectrum, some developing countries will learn to translate the ‘demographic dividend’ created by their declining fertility into higher savings rates, greater human capital development, efficient and open markets, rising incomes and living standards, and stable democratic institutions. Some will follow the meteoric success path of a South Korea or Taiwan, others the slower-but-still-steady success path of an India or Malaysia.
A larger share of the developing world, unfortunately, stands nearer to the challenge end. There are the countries (most notably, in sub-Saharan Africa) least touched by global aging, whose large youth bulges, high poverty rates, weak governments, and chronic civil unrest offer the least prospect of success. There are the countries (most notably, in the Muslim world) where population growth is declining and substantial economic growth is more likely — but where terrorism and destructive revolutions and wars are also more likely. And then there are the countries whose demographic transformation will be so extreme (Russia) or is arriving so rapidly (China) that it could trigger an economic and political crisis. Russia, Ukraine, and the other Christian countries of the Commonwealth of Independent States (CIS), afflicted both by very low fertility and declining life expectancy, are projected to lose an astonishing one-third of their population by 2050. China, having suddenly adopted a one-child policy in the 1970s, will face a developed country’s level of old-age dependency with only a developing country’s income.

2. Major Findings: The Geopolitical Implications

2.1 The Population and GDP of the Developed World Will Shrink Steadily as a Share of the World Totals. In Tandem, the Global Influence of the Developed World Will Likely Decline

During the era of the Industrial Revolution and Western imperial expansion, the population of what we now call the developed world grew faster than the rest of the world’s population. From 17% in 1820, its share of the world’s population rose steadily, peaking at 25% in 1930. Since then, its share has declined. By 2005, it stood at just 13% — and it is projected to decline still further in the future to below 10% by 2050 (see Figure 3). As a share of the world’s economy, the collective GDP of the developed countries will similarly shrink, from 54% in 2005 (in purchasing power parity dollars) to 31% by 2050 (see Figure 4). Driving this decline will be not just the slower growth of the developed world, but also the surging expansion of such large, newly market-oriented economies as China, India, and Brazil.
Implications: In the years to come, developed-world security alliances will need to fortify their global position by bringing powerful new members who share their values and goals into their ranks as equal partners. They will also have to be alert to threats from powerful new peer competitors, acting singly or in concert, who may wish to challenge the existing global order. By 2050, the very term ‘developed nations’ is likely to encompass several gigantic new economies. Today’s long-term security planners need to prepare accordingly.

The Graying of the Great Powers can be purchased at www.csis.org/component/option,com_csis_pubs/task,view/id,4453/ . For inquiries, please contact Keisuke Nakashima at knakashima@csis.org.
Richard Jackson and Neil Howe are, respectively, senior fellow and senior associate at the CSIS Global Aging Initiative. Keisuke Nakashima and Rebecca Strauss, also with CSIS, contributed to the study.
2 Alan Pifer and Lydia Bronte, “Introduction: Squaring the Pyramid,” in Our Aging Society: Paradox and Promise, eds. Alan Pifer and Lydia Bronte (New York: W.W. Norton, 1986), 3.
3 Niall Ferguson, ‘Eurabia?’ The New York Times Magazine, April 4, 2004.

The Interaction of Public and Private Systems in Health Care Provision: the Italian Two-faced Janus

Giuseppe Turchetti — Thu, 08 Jan 2009 13:11:02 +0000

Abstract

The interaction between public and private systems in the provision of healthcare is complex because they refer to different logics and functioning mechanisms. This paper presents and discusses an extreme case of coexistence of public and private regimes in providing healthcare — the Italian intramoenia.
Although the intramoenia regime presents numerous advantages for the patient, the doctor, the hospital, the payer, and the whole healthcare system, it has not spread as much as might be expected. Many distortions could affect the relationships among the players involved in the intramoenia regime and, since at present the cost of the service rendered is generally carried by the patient through out-of-pocket spending, there are also undesirable inequity effects. We maintain that potentially opportunistic behaviours of the players could be reduced by the presence of a professional third party payer, who, thanks to the technical tools of insurance, is able to establish appropriate incentive schemes that could increase the efficiency, reduce inequities, and favour a successful co-existence of public and private forms of organisation and governance of the transactions.

1. Introduction: Public and Private Governance of Healthcare

Since its establishment, in 1978, the Italian National Healthcare System has been affected by complex and elaborate restructuring and reorganization processes. Academic and political discussions are continuously taking place with respect to the pursuit of efficiency in the management of healthcare services and the characteristics of demand, supply and the funding of healthcare.
The organisation and governance of healthcare can be of a private or public nature. The first relies on the ‘market rules’ whereas the second is determined by the ‘rules of planning’. Planning concerns the regulation of the number of authorised healthcare providers, the volume of activity ceiling, the definition of standard tariffs, and the introduction of restrictions with regard to the rates of medical services.
In general, the evaluation of the value of either the public or private approach to the provision of healthcare has to take into consideration:
a)    the correspondence of the services offered with the needs and preferences of the patients;
b)    the efficiency and quality at various stages of the provision of the services;
c)    the appropriateness of the incentive schemes settled on for the agents and of the degree of competitiveness inside the healthcare system.
The correcting interventions of the State in the healthcare system are usually related to the failure of the market and usually linked to the fact that healthcare is a semi-public good, that in this sector information is incomplete, and that the market is imperfect.
Internationally, examples can be found both of the introduction of instruments typical of the public system in order to correct the failures of the market, and of interventions directed at inserting market regulating mechanisms into a planned healthcare system.
More generally, the evolution of the management of healthcare systems tends to be characterised by the convergence towards regulation type solutions based on the presence of instruments which are part of both types of governance.
This evolutionary process is extremely complex and dynamic and forces players in the healthcare system to continuously adapt to new combinations of regulatory instruments and new equilibria, always departing from the principles of inclusion, equity, solidarity, and accessibility which are considered to be at the roots of a good welfare system.
Change is based on various objectives:
a)    the increasing of the level of efficiency of the organisation of demand for services supplied by the healthcare system, which relates in particular to the management of the relationship between citizens and the provider of the service;
b)    the raising of awareness and responsibility within the population with regard to the cost of the various services;
c)    the coordination of the division of tasks and areas of intervention between public and private providers of services, to avoid duplication and overlapping;
d)    the increasing of the quality and efficiency of the services through attaining adequate levels of competitiveness between the providers of healthcare services;
e)    the reinforcement and consolidation of the presence of private players in the healthcare system, in particular with respect to the financing of both healthcare services and long term structural investments, and of technological progress and scientific research.
The main objective of every country is to manage the combining of two goals: increasing the quality of the services supplied by the healthcare system and guaranteeing care to the weaker groups in society by an efficient and effective use of the resources available.
Within the process of renewal of the modes of governance of the healthcare system through corrective measures dealing both with market failure and with the failure of planning, two forms of intervention can be identified. one concern the planning system, the introduction of new schemes of incentives and of budgetary control and internal audit. the other relates to the design of institutional change, able to promote the co-presence and the synergic action of the principles of coordination and selection of the investment trajectories typical of the market with those distinguishing the planning system.
Starting from this premises, in this paper we will present and discuss a particular and extreme case of coexistence of public and private systems in Italy — the intramoenia regime — where public and private coexist with respect to the organisation, governance, delivery and financing of healthcare services. The interesting aspect of this case is that the ‘public/private dimension’ is not considered as a co-existence, within the healthcare system, of both public and private service providers, who have distinctive objectives and functioning mechanisms, but rather as a co-existence, in the same service provider (public hospital and/or medical doctor employed by the National Healthcare System), of both roles/regimes, the public and the private, which are organised and move according to completely different mechanisms. A Two-Faced Janus with a potential identity crisis.
In this paper the nature, development and diffusion of the intramoenia regime will be discussed (section two). Furthermore, the characteristics and the mechanisms of interaction developing between the various players within the intramoenia regime will be analysed in section three. In section four several proposals will be made with regard to the way in which a proper use of the ‘financing tool’ should by made. These proposals will relate particularly to the role played by payers (professional intermediaries). This could reduce the emerging of distortions in the functioning of this ‘double regime’ and promote a better interaction of public and private mechanisms, for the benefit of the patient and of the healthcare system in terms of both financial sustainability and equity.

2. An Original Way of Public and Private Coexistence: The Intramoenia Regime

Over the years, there has been a progressive introduction of market elements in public healthcare systems. An important test case of an attempt to join public and private is the Italian case of intramoenia care — private provision of health services within the public healthcare system —, which is one of the possible ways of creating public-private interaction and coexistence in the organisation, delivery and funding of healthcare services.
In the case of intramoenia care, public medical and healthcare staffs, individually or in teams, perform, outside the contracted hours of service, in ambulatory, day hospital or day surgery regimes, diagnostic services (with technologies and/or as specialistic visits) and therapy (medical and/or surgical), as requested by and based on the free choice of the patient. The choice of intramoenia care implies that either the patient, his/her insurance company, or his/her integrative healthcare fund pays for the service.
Therefore, intramoenia care forms a context where the relationships between players in the health sector (health professionals, hospitals, third payers and patients) are extremely complex. Within public institutions, regulated and characterised by public mechanisms, in fact services governed by contracts of a private nature are carried out by the health care professionals employed by the public hospital.
Intramoenia care was introduced by Law nr. 662 of 23 December 1996, after which it was subject to various changes and has developed and been unevenly disseminated throughout Italy. Prior to its introduction, two steps were particularly relevant and have allowed for the development of the intramoenia regime: 1) in 1978 (Law nr. 833) doctors (and veterinarians), who are public employees of Local Health Units, Universities, Polyclinics and Scientific Institutes for Hospitalisation and Care, were given the right to exercise private professional activity; 2) in 1991 (Law nr. 412) the principle of exclusiveness of employment of physicians within the National Healthcare System was introduced.¹ The consecutive Legislative Decree nr. 229/1999, recognises health workers’ rights to exclusivity of employment, allowing them to exercise their private activity in the intramoenia regime, within the public healthcare hospitals where they are already employed. Law nr. 120/2007, stems from the need, almost ten years after its introduction, to correct delays and distortions originating from the implementation of the intramoenia regime (described in various studies which will be discussed below). It also introduces various organisational-managerial and structural correction mechanisms. From an organisational-managerial point of view the law favours the establishment of a pricelist which covers the costs of the intramoenia regime; the monitoring of the waiting lists for people not using intramoenia care and the adoption of mechanisms to reduce the average length of waiting lists; assuring limited differences in waiting time between the regular public waiting list and the intramoenia regime; the clarification by the hospitals of their intentions concerning how to distribute the two modes of healthcare delivery. From a structural point of view, according to the law the healthcare supplier can use for the intramoenia regime the spaces available for institutional activities. However it has to guarantee the separate management of the two types of healthcare delivery in particular with regard to the timetable, booking, and payment. This last has to be entrusted to the personnel but in a different location and at different times from those of the institutional activity. Therefore, as intramoenia care needs to take place within and under particular conditions, it is necessary to carry out restructuring works.
Over the last few years the National Agency for Regional Health Services, the Social Affairs Committee of the Chamber of Deputies (2002-2003), the 12th Hygiene and Health Committee of the Senate (2007) and Istat (National Statistics Institute) (2007) have carried out surveys and have gathered statistical data regarding the diffusion and characteristics of the intramoenia regime.
The main objective of the Parliamentarly Survey² carried out by the 12th Hygiene and Health Committee of the Senate was to analyse the state of the intramoenia regime almost ten years after its introduction. Particular attention was paid to the implications for waiting lists and the possible other inequalities generated for those accessing public health services. The outcome of the analysis shows a very heterogeneous picture. There are regions of Italy where intramoenia care is fairly widespread and the results are satisfactory and others areas where it is not widespread and the results are particularly poor. With regard to the doctors of the National Health Service and the Institutes of Public Care (survey of 353,200 doctors), the outcome of the survey showed that 95% opted to work exclusively for the National Health Service (5% work also in private clinics). Of this 95% only 59.2% effectively use the opportunity to perform private activity in the intramoenia regime within the National Health Service. The analysis shows that the space occupied by the intramoenia regime as part of the public health facilities, is very little: only 2% of the outpatient’s clinics and 2.3% of the beds.
There is a high demand for differentiation of services emanating from the population. A recent study carried out by ISTAT (2007) with respect to the demand for services by fee-paying patients (intramoenia care and private healthcare) shows that there were aproximately 15,298,000 diagnostic tests carried out in Italy in 2005 of which 69.7% were laboratory tests and 30.3% diagnostics by specialists. Of these diagnostics by specialists 20.9% was paid in full by families (out-of-pocket). The percentage of specialist visits paid in full is highest among people aged between 25 and 44 years, particularly women (39.2% in the age group 25-34 years and 32.7% in the group 35-44 years) and residents in central Italy (24.9%). The health services which were most frequently paid for in full are specialist visits (56.8%).
With regard to the level of education, the survey shows that in 2005 46.8% of people with a primary school diploma had paid in full for a specialist visit, compared to 68.2% of people with a high school diploma or a university degree. With respect to the economic condition of the interviewees it turned out that 47.9% of those who indicated they have scarce or insufficient economic means had paid for specialist visits. With regard to diagnostic tests, 35.8% of those who have a higher level of education pay in full against 15.4% of those with a primary school diploma.
Unfortunately, available data with respect to ambulatory care are limited. Data available on intramoenia care originate from the Schede di Dimissione Ospedaliera SDO (Hospital Discharge Data Sheets). In 2004 the most numerous healthcare services carried out in the intramoenia regime related to obstetrics/gynaecology (26.4% of the discharged patients using intramoenia care), general surgery (16.9% of the discharged patients using intramoenia care) and orthopaedics/traumatology (11.1% of the discharged using intramoenia care, see Table 1).

Table 1: Discharged intramoenia patients in 2004: organised by ward (20 most important)

Source: National Agency for Regional Health Services, 2007

Reports published by the Tribunale del Malato-Cittadinanzattiva (Tribunal for the Rights of the Patient, 2007) showed that the reasons for choosing intramoenia care are linked to the possibility of choosing the doctor one prefers, and the guarantee of therapeutic continuity.
The latest data available with regard to the expenses incurred by families for healthcare (2006) show that 7.6% of the total expenses incurred for healthcare concerns intramoenia care, whereas 7.5% of the total expenses relate to the ticket³ (National Agency for Regional Health Services, 2007; see Tables 2 and 3).

Table 2: Health expenditure of Italian families, 2004-2006
Values at current price, millions of Euros

Source: Our elaboration of data from National Accounts of Ragioneria Generale dello Stato (several years)

Table 3: Health expenditure of Italian families for intramoenia and tickets, 2004-2006
Values at current price, millions of Euros

Source: Our elaboration of data from National Accounts of Ragioneria Generale dello Stato (several years)

We can assume that the expenses incurred by families for intramoenia care are higher than the 1.100 milion Euro’s (see Table 3) which are registered for 2006, as checks made by the Revenue Guard Corps (and transmitted to the Senate) show that about 30-40% of all services had not been officially registered.
The data evidence that, even if intramoenia care is still not very well developed all over Italy, the demand for differentiation of the services emanating from the population is high and growing. In the following sections strengths and weaknesses of the intramoenia regime will be discussed.

Giuseppe Turchetti, PhD, Scuola Superiore Sant’Anna, University of Pisa.
1 The possibility of working as a private professional for doctors working in the public healthcare system is compatible with the exclusiveness of the work relationship, as long as it is carried out at different times and not in private healthcare institutes with no relationship with the national health care system.
2 The study is based on the questioning of various actors involved in the healthcare system (from the Ministry of Health, the Associations of Physicians and Patients and the managing directors of local health institutions) and on the information gathered through questionnaires sent to all the regions and selected healthcare providers.
3 The ticket is an obligatory contribution per service rendered in the public healthcare system; weak groups -age, income, state of health- are exempt from paying this contribution.

Towards the Improvement in Working Conditions for Older Workers: Empirical Evidence from Maltese Companies

Andrea Principi and Giovanni Lamura — Thu, 08 Jan 2009 11:17:36 +0000

Abstract

As in most of the 27 European Union member states, and stimulated by recent community policies, Malta is also a country currently in the throes of a political and normative process, whose objective is to extend the professional life of workers, mainly by deferring retirement age.
However, in pursuing this objective, Malta starts from a rather unique position, which could be defined as disadvantaged with respect to most other European countries, due to the peculiar characteristics of its workforce, which is the youngest of the 12 new member states (only 16% of Maltese workers are over 50, whereas 23% are aged 15-24 — Mandl, Dorr and Oberholzner 2006: 14). Average retirement age is increasing, but is nonetheless one of the lowest of the 27 European countries (in 2005 it was 58.8 years, as in France, and higher only than that recorded in Slovenia); it is in the second-last place, ahead only of Poland, in terms of employment rate, both in general terms and for older workers (the latter reached 30.0% in 2006), but the rate drops to last position, however, when only older women are considered (11.2%) (Eurostat 2007). The considerable gender gap in the employment rates and the low number of older workers (also distinguished by lower qualifications — Gonzi and Diamantopoulus 2001: 11) overall in the Maltese workforce, can actually be seen as the chief causes of a generally low level of employment in the country. The female employment rate is particularly low in the 45-54 and 55-64 age groups, both because older women leave the employment market more frequently than men (Technical Team to the Pensions Working Group 2005a: 7-9), and because most younger women leave work to have children and tend not to resume their professional lives, except for brief periods (Schwarz, Musalem and Bogomolova 2004:4).
The picture causes some concern because Malta is not free from the demographic ageing process (Pensions Working Group 2004a: 5) which affects the whole European Union (Employment Taskforce 2003: 12). Therefore, even starting from a less favourable position, for the reasons explained above, the European objective¹ to activate strategies aimed at raising the general employment rate and implementing social security systems, beginning with pension system reforms (Principi, Gianelli and Lamura 2007: 122), is a priority also in Malta.
One of the solutions identified in Europe and in Malta is to extend the workers’ professional life (Employment Taskforce 2003:11, European Commission 2002, European Commission 2004, OECD 2005: 6, Gonzi and Diamantopoulus 2001: 7 and 22, Ministry for the Family and Social Solidarity 2007a: 30). To be more specific, the two main objectives towards which the Maltese Government is currently working are those of raising the employment rate of older workers, as well as that of women in general (Technical Team to the Pensions Working Group 2005a: 7-8, Technical Team to the Pensions Working Group 2005b: 8, Ministry for the Family and Social Solidarity 2004: 9), through pension system reform and a series of job placement schemes for the unemployed, coordinated by the Governmental Employment and Training Corporation organization.

1. The Reform Of The Maltese Pension System

Malta has recently reformed its pension system (the law in question became effective from 1st January 2007: Social Security — Amendment 2 — Act 2006), raising both the retirement age (from 60 for women and 61 for men, to 65 years of age for both genders) and the number of years of contributions required to become entitled to a pension (from 30 to 40). The process will be implemented gradually, in that the rise in retirement age to 65 years will only be finalized in 2027, which is when today’s 45-year-olds will reach their 65th year of age (Table 1).

Table 1: Gradual raising of retirement age

Women are given the possibility of working up till the age of 61.
Source: Principi and Lamura 2007a.

With regard to gradually raising years of contributions from 30 to 40 years for entitlement to a pension, if we take 2007 as a reference, no changes are foreseen for those who are 56 or over (i.e. 30 years contributions are sufficient); 35 years contributions are needed for people aged between 46 and 55; and finally, 40 years of contributions are needed for those who are under 45 (Fairbairn 2006).
The law is the result of a long debate amongst all the social partners, which became more concrete in 2004, when a working group was appointed with the aim of drawing up a White Paper on pension reform, to contain proposals and recommendations that were to be submitted for feedback from all the social partners of the country (Pensions Working Group 2004a, Pensions Working Group 2004b, Technical Team to the Pensions Working Group 2005c). The act is certainly a step forward in a much hoped-for increase in the employment rate for older Maltese workers, but there is also friction in the country between the social partners, as well as other contradictions. For example, the Union Haddiema Maghqudin (Workers’ General Union) was opposed to raising the retirement age to 65 and did not want it changed, suggesting that any decision to stay at work should be left to the worker (Technical Team to the Pensions Working Group 2005d: 11). Perhaps the most obvious contradiction looming on the horizon concerns precisely this decision, which remains totally in the hands of employers, who, at the moment, can legally decide to dismiss employees when they reach retirement age (Employment and Industrial Relations Act 2002:22). The above mentioned working group included a recommendation in the White Paper (regarding precisely the possibility of workers being able to choose to continue to work even after reaching the new retirement age) to eliminate this item, which obviously contradicts the recent guidelines provided by European policies (i.e. Employment Taskforce 2003:8; European Commission 2004: 15;OECD 20006: 137), but this was not included in this act. Essentially, therefore, on one hand steps are being taken to raise the employment rate of older workers, and on the other, they continue to be discriminated against because they are not allowed to decide for themselves whether or not to extend their working lives.
The question of age discrimination at work is actually dealt with directly by Maltese law (Fortuny, Nesporova and Popova 2003: 26), but the act also includes a series of exceptions which limit its scope. For example, the act states that differences in employment terms and conditions based on age do not constitute discrimination when they are “objectively and reasonably justified by a legitimate aim’, what this actually means is not made clear by the law, or in the event that a maximum age limit offering employment is determined by the company’s need to train the worker for the tasks they will perform, or having to employ a newly-recruited worker “for a reasonable period of employment before retirement” (Equal treatment in employment regulations 2004: 4).

2. The Role Of The Employment And Training Corporation

The Maltese Government has entrusted the Employment and Training Corporation (ETC) with implementation of the various occupational support measures in favour of older workers. It is a national public agency for employment, responsible, among other things, for organizing schemes at central level, with the objective of raising the country’s employment rate, through job placement programmes for specific categories of unemployed workers, including women and older workers (Ministry for the Family and Social Solidarity 2006a: 93). In Malta, at ‘institutional’ level, the latter was always taken to mean those over 40, an age limit that was not only lower than the 45 generally adopted, for instance in Italy, (Senate of the Republic 2005: 25, ATDAL 2003: 30, Bombelli and Finzi 2006), but more importantly below the ‘official’ limit of 55 indicated by the European Council of Stockholm in 2001. This Maltese peculiarity is justified since in the experience of ETC operators, it is from this age that workers in the country of suffered the greatest expulsion from the employment scenario, and problems of professional reintegration. As a direct consequence, from the year of its foundation (1990), the organization has launched various projects to safeguard the category of unemployed over-40s, with the objective of favouring their return to the employment market². Out of all the whole programmes organized by the ETC, the most significant so far developed for older unemployed workers was the Training and Employment Exposure Scheme (TEES), which began in 2005 and ended in 2006. This job placement scheme was dedicated to unemployed workers aged over 40, who had been looking for work for over six months, and was co-financed by the European Social Fund, which guaranteed the participants a salary higher than the minimum wage for a year (of which six months were spent in classroom training organized by the ETC, followed by six months in-house on-the-job training), with the possibility of being offered permanent employment by the company at the end of the scheme.
This programme, in which the on-the-job training period varies, according to the requirements of the companies, was well received by unemployed workers and welcomed by employers due to the economic advantages associated with it (the worker’s on-the-job training period is partly financed by the Government), as well as to the opportunity to be able to consider the training period as a ‘trial’ with the possibility of deciding at a later stage whether to hire the worker permanently. Around 460 unemployed over-40s took part in the scheme (about 25% were female), of whom only 24% were still registered as unemployed at the end of the scheme. The majority were employed by the companies where they trained, or used the experience to find employment for themselves (Employment and Training Corporation 2006: 32).
As for the future perspectives, and in order to come closer to the ‘European’ definition of ‘older workers’, the ETC is modifying the reference range (raising it by 10 years) for ‘labelling’ older workers. The next project (the Employment Aid Scheme), will be aimed, among other ‘clusters’ of beneficiaries³, at over-50s who are unemployed or about to become so (Employment and Training Corporation 2007).
However, in anticipation of the results of this programme and in the light of recent pension reform, it is crucial to examine the older worker sector closely and also to analyze the situation at another level, i.e. corporate. What schemes have been set up by Maltese companies to deal with an ageing workforce? A recent contribution in this direction was made by the “Employment Initiatives for the Ageing Workforce in the European Union” study, undertaken on Maltese territory from the end of 2006 till early 2007, which made it possible to gather some of the first empirical evidence regarding the existence and the characteristics of company schemes adopted to support the ageing workforce. The main contents and results are shown below.

Andrea Principi: Italian National Research Centre on Ageing (I.N.R.C.A.), Department of Gerontological Research, Ancona, Italy.
Giovanni Lamura: Italian National Research Centre on Ageing (I.N.R.C.A.), Department of Gerontological Research, Ancona, Italy.
1 In the context of European policies on the subject, European Council resolutions in Lisbon in 2000 (raising the employment rate from 61% to 70% by 2010), in Stockholm in 2001 (raising the employment rate of older workers to 50% – for those aged 55-64 — by 2010) and Barcelona in 2002 (gradually increase retirement age by about five years by 2010), are considered milestones.
2 The organization has also dedicated a section of its internet site to the unemployed over 40 years of age: www.etc.gov.mt/site/page.aspx?pageid=2150 [access: 7th January 2008]
3 Including, among others, also ‘disabled’ persons, ‘unemployed for over five years’, ‘single parents with children under 18’, ‘persons with few qualifications and who have recently been dismissed’, etc.

The Need for Age-Neutral Training in the ‘Silver Society’

Roger Hessel — Wed, 07 Jan 2009 22:05:39 +0000

Abstract

With the ageing of society, pension reforms loom over the policy agenda of industrial countries. A core element of most pension reform packages is the increase of the pension age. Both policy makers and enterprises are, thus, aware that lifelong learning and the need to retain older workers in employment takes on ever more importance.
Adults who are remaining in the active population longer need (re-)training in their fifties and sixties in order to maintain their productivity. Companies will increasingly have to rely on the experience of older workers. However, the incidence of vocational training tends to decline with age. This paper analyses the European Employment Strategy, the concept of ‘active ageing’ and later examines the question whether the productive potential of older people does not appear to be substantially impaired by ageing per se. The implementation and success of vocational training programmes rely on the involvement in particular of the social partners at European, national and sectoral level. The article analyses therefore the role of the social partners with regard to the possible benefits of vocational training. The traditional mind-set about older workers is challenged. Instead, the paper advocates an age-neutral approach to vocational training: learning must become a habit for all ages aiming at delivering a base of competences and skills relevant to all stages of the working life.

1. Recent Labour Market Changes in Europe

1.1 Main Employment Policy Developments Across the EU

Within the European Union, the labour markets are experiencing substantial and rapid change. Key drivers include high-tech technology and innovation, which facilitate the tradability of services to an ever-increasing extent. The revised European Employment Strategy has taken these developments into account and foresees a significant increase in the employment rate of workers. Increasing the employment rates of all workers, in particular women and older people, is a key element in the EU strategy for making social security systems sustainable at the height of population ageing.
While the need to boost employment participation is an urgent issue of common European interest, employment policies — including vocational training programmes — come within the exclusive competence of the Member States and national social partners. For this reason employment policies at European level remain rather vague about how to promote training programmes. With the Open Method of Coordination,¹ the European Commission certainly encourages Member States to engage in close cooperation on social policy issues. However, training practices in companies and training institutions differ widely from one country to another. Countries in northern Europe, make a rather high use of training. In Scandinavian countries adult education is particularly well developed and institutionalised for a large proportion of the population. In Austria, Germany and the Netherlands, flexible working practices — such as gradual retirement schemes – are a frequently used feature of age management. Southern European countries, by contrast, are typified by limited resources to training. This great variety reflects different training cultures and concepts among Member States. Julien Machado argues that less developed training attitudes in Greece and Portugal, for instance, may be partly explained by lower levels of technological sophistication of their production infrastructure, which is known to be a crucial factor in the use of training.²
According to the European Employment Guidelines, European Member States should provide incentives for employees to retire later and in a more gradual way and incentives for employers to retain older workers, i.e. workers aged 55-64.³ The Guidelines lay out different but complementary approaches: employment policies should promote training, lifelong learning strategies and active labour market policy measures for everyone regardless of their age.
The focus of the European Employment Strategy is on raising employment and not just on reducing unemployment. Increased employment of older workers is seen as a lever to ease the burden of societal ageing and demographic change in Europe.⁴ The two largest groups considered were women and older workers. But while promoting employment opportunities for women has ranked high on the European Employment Strategy agenda from the very beginning, this has not been the case with the employment of older workers.⁵ Since 2002, the European Employment Guidelines contain two quantitative targets in respect of older workers, which were both introduced as part of the Lisbon strategy: the first is to raise the employment rate of older workers in the EU to 50% on average by 2010; the second target is to increase by 2010 the effective average retirement age from the labour market by five years. The EU average employment rate was 59.9 years in 2001; the total employment rate should be increased to 70% by 2010.
In line with its objective of becoming the most competitive knowledge-based powerhouse by 2010, the renewed Lisbon Strategy prioritises national ‘ownership’ and reform commitments: the strategy stresses the need for concrete structural labour market reforms combining market flexibility and security of working conditions.⁶ In its Annual Progress Report on the Lisbon Strategy of 2007, the European Commission acknowledged that progress on growth is still uneven and the spotlight is now moving to delivery of results. The Commission has redefined investment in education and research as the first of four priority areas, which should be stepped up to 2% of the growth domestic product (GDP) from the current 1.28% by 2010. Improving the adaptability of workers covers a broad range of action, supported by the EU through legislation and Community funds.⁷
A new programming period for the European Structural Funds started in 2007 for all Member States: a new set of regulations governing the Funds brings some of the biggest changes in over a decade. The European Social Fund (ESF) should contribute to achieving the objectives of the ‘Lisbon Strategy for Growth and Jobs’. The new regulatory framework is more focused than the current one: the ESF will be a significant funding and policy tool for the promotion of human capital and workers’ skills development.
As an important part of the EU’s Social Agenda 2005-2010, the European Commission had launched in 2006 and 2007 a consultation process on the need to review current labour law systems. One of the policy questions of the “Green Paper on Modernising labour law to meet the challenges of the 21st century”⁸ concerned the role national labour law and collective agreements might play in promoting access to training over the course of a fully active working life. Further to this consultation process the European Commission has presented the ‘Flexicurity Concept’, a rather broad strategy to combine and at the same time enhance both flexibility and security for workers and companies. This initiative has the merit of having launched a large policy debate which boosts a benchmarking process between the rather different national labour market policies. The Flexicurity concept also deserves credit with regard to one of its four outlined policy components: “lifelong learning strategies to ensure the continual adaptability and employability of workers”. However, it lies within the responsibility of the Member States to implement country-specific reform measures. For the time being, only the highly-developed welfare states which can afford generous social security benefits seem to find the right balance between rights and obligations, security and flexibility.

1.2 The Active Ageing Concept

Demographic changes in the 21st century are confronting European countries with a substantial challenge. These developments are part of a wider trend: all parts of the world are witnessing or will witness demographic ageing over this century. Age has by its nature an impact on the ability to work. According to research provided by the Finnish Institute of Occupational Health, individual differences in work ability — a sum of individual and work-related factors — are more pronounced after the age of 55 years. With regard to physically demanding work, work ability tends to decrease between 51 and 62 years. While a decline may occur in physical work capacity, mental work performance are maintained and cognitive and social skills may even be enhanced. The research findings underline the need for individual solutions to work when people are getting older.⁹ Proper training programmes and individual training incentives would also fit with the increased heterogeneity of the older labour force at a higher age. New forms of so-called end-of-career management must take these differences into account so as to avoid resistance from parts of the working community and the costly strikes that European countries have already experienced for example by truck drivers, craftsmen and firemen.
The concept of ‘active ageing’ was originally developed by the World Health Organisation (WHO) and launched at the Second Assembly on Ageing in Madrid in April 2002. The WHO defines active ageing as “the process of optimising opportunities for health, participation and security in order to embrace quality of life as people age”.¹⁰ The WHO underlines the very close link between activity and health. The concept suggests how important it is to enhance the quality of life far into old age by maintaining mental and physical well-being throughout the life cycle. It is a preventive concept which means involving all age groups in the process of ageing actively during the entire course of life. The focus is on enablement — restoring function and expanding the participation of older people — instead of disablement, the increasing needs of the elderly and the risk of dependence.
Since 1999, the European institutions have also taken the active ageing strategy on board. In its active ageing strategy the European Commission emphasises a participatory approach giving citizens adequate opportunities to develop their own forms of activity. The focus is shifted from the elderly as a separate group and directed at all citizens, since everybody is ageing all the time. From 2001 onwards, ‘active ageing’ was given more prominence by making it a separate guideline. The 2001 Guidelines stress the need for “in-depth changes in the prevailing social attitudes towards older workers (…) to raise employers’ awareness of the potential of older workers”, as well as a revision of tax-benefit systems in order to reduce disincentives and make it more attractive for older workers to continue participating in the labour market”. The report of the Employment Taskforce “Jobs, Jobs, Jobs: Creating More Employment in Europe” of 2003 paved the way for active ageing to become a top priority for the EU. It remains to be seen if the active ageing approach will gradually help to replace today’s glorification of youth with values of solidarity and a more age-neutral approach in employment and human resources practices. To recapitulate, the European Commission’s orientation towards active ageing policies, i.e. the strategy of mobilising the full potential of people of all ages, seems to be the right policy for the future.

Roger Hessel: The author is Lecturer at EIPA-CEFASS, the Italian Antenna of the European Institute of Public Administration (EIPA); he is external expert for the ILO and Visiting Professor at the Polytechnic University of Milan.
1 The Open Method of Coordination was laid down at the Lisbon Council meeting in 2000. The summit proposed that this method should facilitate work on social protection “as a means of spreading best practice and achieving greater convergence towards the main EU goals” in areas where Community powers are limited. See also: Philippe Pochet (2001): “Social Benchmarking, Policy Making and New Governance in the EU”, Journal of European Social Policy 2001: pp. 291-307.
2 Julien Machado (2008): “CNRS Aix-en-Provence, Forms of Continuing Training in the Workplace: A Result of Social Meanings?”, European Journal of Vocational Training, No. 22, 2008, Edit.: European Centre for the Development of Vocational Training CEDEFOP, Greece.
3 “Some 79.7 million older workers had a job or a business activity in the EU-25 according to a Eurostat survey of 2004”, News Release 112/2005, 8 September 2005.
4 European Commission Communication Increasing the Employment Rate of Older Workers and Delaying the Exit from the Labour Market, COM (2004) 146, March 2004.
5 The first Employment Guidelines for 1998 virtually did not refer to them.
6 Jean Pisani-Ferry, André Sapir (2006): “Last Exit to Lisbon”, BRUEGEL Policy Brief, issue 06/02, March, www.bruegel.org; Alexander Heichlinger, Seppo Mättää, Good Governance in Delivering Sustainable Growth: Regions and Municipalities as the Promoters of the Lisbon Strategy, EIPA Background Paper for the Finnish EU Presidency, September 2006.
7 The New European Structural Programme 2007-2013.
8 See the EU Commission website: ec.europa.eu/employment_social/labour_law/green_paper_en.htm.
9 Prof. Juhanni Ilmarinen, Finnish Institute of Occupational Health, Helsinki, in: Juhanni Ilmarinen, Ageing Workers in Finland and in the European Union: Their Situation and the Promotion of their Working Ability, Employability and Employment, Geneva Papers on Risk and Insurance, Vol. 2, No. 4., October, pp. 623-641.
10 Website of the WHO: www.euro.who.int/ageing.

Medicare in USA: Present and Future

James C. Capretta — Wed, 07 Jan 2009 22:00:51 +0000

1. Introduction

The election of former Illinois Senator Barack Obama as the next president of the United States has pushed health-care back to the top of the national agenda, although the exact timing of a legislative initiative remains unclear.
Most of the policy attention in the short-term will necessarily focus on how to pull the U.S. out of the most precarious financial crisis in many decades. And it is possible that pre-occupation with restoring economic growth could delay consideration of a health-care plan for several months or even years. However, key players in the new Administration are eager to move quickly on health-care, regardless of other economic conditions.
The primary focus of American health-care policy debates in recent years has been over what to do about the nation’s 46 million uninsured residents. Mr. Obama considers that to be the number one failing of current U.S. health-care policy. His campaign plan, released as a white paper in mid-2007, proposed major revisions in the regulatory structure for health insurance for the working age (under age 65) population and their families. He would also provide substantial new subsidies for households with incomes below 400% of the poverty line to make insurance more affordable. But the Obama plan does very little by way of reform of Medicare, the insurance program already in place for those citizens age 65 and older, as well as for the disabled.
That is not likely to be a sustainable position over the long-run. Left unchanged, Medicare spending will push the federal budget into sustained deficits that could spiral out of control. Many economists consider Medicare’s rising costs to be the number one threat to the long-term strength of the U.S. economy.
It is also not yet well understood among health-care policy analysts that Medicare provides a serious disincentive to continued work past age 65. Thus, Medicare reform needs to be considered not only to make the budgetary outlook more favorable, but also to take steps to address the issue of an aging society and the need to encourage work for as long as possible past age 65.

2. Medicare’s Current Design and Financing Gap

The U.S. has the very unusual situation of two large health-care entitlement programs but not universal entitlement to health care. This came about because President Lyndon Johnson believed in 1965 it would be better to pass coverage for seniors and the poor than a plan to cover everybody.
The result was legislation creating Medicaid and Medicare.
Medicaid is a joint federal-state program aimed at providing health insurance for those who are either enrolled in welfare programs or working but very poor. The program is funded mainly with general revenue funding from the federal government, with states expected to pay for a portion of the costs as well. On average, the federal contribution covers 57% of total costs. Medicaid’s enrollees pay very low cost-sharing when they use health-care services.
Medicare is built more like the Social Security program, with trust funds tracking income and outgoings and eligibility determined by worker contributions and premiums. Currently, workers and their employers each pay taxes on wages — 1.45% — to gain eligibility for hospital insurance. At age 65, senior citizens must also pay a premium equal to 25% of costs for coverage of physician services, and a 35% premium for coverage for prescription drugs.
The latest report from Medicare’s Board of Trustees, issued in late March 2008, revealed that the program’s unfunded liability now stands at an astounding $86 trillion, and the trust fund which pays for hospital services is expected to go bankrupt in 2019. Total Medicare spending is projected to more than triple over the projection period as a share of the national economy, from 3.2% of GDP in 2007 to 6.3% in 2030, 8.4% in 2050, and 10.7% in 2080. Federal individual income tax collections only amount to about 8.5% of GDP. Covering just the increase in Medicare spending expected by 2030 would require a 36% across-the-board individual income tax hike.
Many analysts in the U.S. have put forward plans to restore financial balance to Social Security, but there are very few credible Medicare reform proposals to examine.
Why?
Because Medicare’s financial problems are much more severe, and the policy environment is much more complex as well.
Medicare is a pay-as-you-go program too, and the aging of population is an important reason program costs will soar in coming years, especially as the baby boomers head into retirement in the next two decades. But, unlike Social Security, Medicare’s problems go well beyond shifting demographics.
The Medicare entitlement is not defined by a mathematical formula tied to payroll taxes. Rather, enrollees get government-sponsored insurance coverage, the cost of which is mainly a function of ever-changing standards and technologies of medical practice. Today, Medicare pays for many services, diagnostic tests, operating procedures, and products that did not exist yet when the program was created by Congress in 1965. And there is no limit on the quantity of services Medicare beneficiaries can use each year, so both the volume and intensity of care provided can go up over time without Congress passing benefit expansions.
Still, it is possible to see Medicare’s financial problem as fairly simple math. The Congressional Budget Office (CBO) estimates that, between 1975 and 2005, Medicare’s cost per enrollee went up, on average, 2.4 percentage points faster than per capita GDP growth each year. Medicare’s Trustees make the reasonable assumption that, new information being absent, this long-standing trend of costs outpacing the source of program income (i.e., the U.S. economy) will continue into the indefinite future (though the Trustees do expect cost growth will moderate somewhat from its recent trajectory). Compounding is indeed a powerful force; even a small differential in cost and revenue growth rates will, if assumed to continue over many years, produce a massive projected deficit, especially when such a differential is applied to sums as large as those involved in the Medicare program.
Medicare was never expected to be fully funded like Social Security. Federal taxpayers have always subsidized coverage for physician services, and Congress extended this subsidy, much to the chagrin of many fiscal conservatives, to prescription drug coverage in 2003. Enrollees are required to pay their own premium if they elect to enroll in these parts of Medicare, but these premiums now cover only about 25% of costs, with the balance financed automatically from the U.S Treasury. This annual subsidy is set to rise dramatically in coming years, from 1.5% of GDP in 2007 to 4.7% of GDP in 2050. The entire budget for the Department of Defense now stands at about 4.0% of GDP.
Some health-care analysts argued that it would be unfair to focus reform efforts just on Medicare because the problem of rising costs is really everyone’s fault and everyone’s to solve. To these analysts, Medicare is just one of many rail cars hooked onto a runaway cost train. The solution is therefore not Medicare reform but a concerted effort, led by the government, to implement reforms that will improve efficiency and eliminate low value services for everyone buying insurance and services, including employers.
This is the kind of thinking behind the health care plan of president-elect Barack Obama. To slow costs, he supports a list of measures: more and better health information technology, new efforts to coordinate care for those with chronic illnesses, and better prevention efforts. These efforts in fact enjoy broad support from politicians, but they are unlikely to solve the problem of costs rising faster than income. Indeed, there is certainly no expectation that they would narrow Medicare’s financing gap in any significant way.
To slow health-care costs appreciably in the U.S., policymakers are likely to be forced to adopt much stronger measures. For instance, the U.S. could impose tighter budgets for hospitals and other provider groups, as many European countries do today. But there is concern among many in the U.S. that such arbitrary limits would damage quality and lead to rationed care. Many U.S. voters react negatively to the prospect of the government having the power to deny access to health care to a citizen based on a perceived need to keep total costs down.
Implementing a different approach to cost control, one more in line with U.S. values, requires a deeper understanding of why costs are high and rising in the first place.
An important 2006 study by Amy Finkelstein, an economics professor at the Massachusetts Institute of Technology, demonstrated that the creation of Medicare in the mid-1960’s triggered an explosion in the health care infrastructure in regions with previously low levels of insurance enrollment among seniors. Hospitals were built, and physicians and others opened up offices to provide newly enrolled Medicare beneficiaries with a much improved level of service provision. This was, of course, generally to the good, as the primary purpose of Medicare was to improve the quantity and quality of health care services provided to seniors. But, four decades later, with cost escalation now the cause of so much financial distress for families and governments, policymakers must also understand that expansive insurance is the fuel for expensive care and rising costs.
Medicare is not solely to blame of course. Employer-provided insurance also expanded rapidly in the post-war era. And demand for more and better health care naturally rises with increasing wealth and higher incomes. But Medicare is unquestionably a large part of the cost problem. In her paper, Finkelstein offers the rough estimate that about half of the real cost increase in health care spending in the United States from 1950 to 1990 can be attributed to the spread of Medicare and other, expansive third-party insurance.
Medicare is the largest purchaser of services in most markets today. Four out of five enrollees are in the traditional program, which is fee-for-service insurance. That means Medicare pays a pre-set rate to any provider for any service rendered on behalf of a program enrollee, with essentially no questions asked. Nearly all Medicare beneficiaries also have supplemental insurance, from their former employers or purchased in the Medigap market. With this additional coverage, they pay no charges at the point of service because the combined insurance pays 100% of the cost. This kind of first-dollar coverage provides a powerful incentive for beneficiaries to use as many services as their physicians suggest might help improve their health. Whole segments of the U.S. medical industry have been built around the incentives embedded in these arrangements. To be sure, Medicare’s payment rates are low, but political pressure ensures they are just high enough to protect the status quo and allow doctors and hospitals and others to continue operating autonomously, thus underwriting continued fragmentation.

James C. Capretta is a Fellow at the Ethics and Public Policy Center and an Adjunct Fellow with the Center for Strategic and International Studies’ (CSIS) Global Aging Initiative. He is the author of “Global Aging and the Sustainability of Public Pension Systems: An Assessment of Reform Efforts in Twelve Developed Countries,” a report published by CSIS in January 2007.

USA Retirees 2008 Survey: Summary Report

Dallas Salisbury — Wed, 07 Jan 2009 21:46:52 +0000

1. Introduction

The 2008 Recent Retirees Survey was sponsored by the Employee Benefit Research Institute (EBRI) to better understand the tools and practices that might encourage workers to postpone their retirement and remain longer with their company.
It finds that retirees typically retired from employers for one of four reasons: retirement becomes affordable, lack of job satisfaction, a desire for more personal or family time, and/or their health status.¹ One of the major findings of the survey is that employers have a narrow window of up to two years in which they may be able to intervene to change retiring workers’ decisions by offering them incentives to remain with the company. Although no single incentive is likely to motivate a majority of retirees to stay longer with their employer, it appears that employers may be able to assemble a toolkit of alternatives that would be effective in retaining substantial numbers of workers at retirement age.
Among the key findings of this survey:
1.    Many retirees report they would have been open to an approach from their employer asking them to stay longer with the company. 61% say they would have viewed the experience positively. Just 10% indicate they would have reacted negatively to an approach asking them to delay their retirement.
2.    The survey tested a total of 19 possible incentives that might encourage retiring workers to postpone retirement. Four of these appear especially likely to be successful:
a.    Half of retirees (48%) indicate that feeling truly needed for an assignment would have been extremely or very effective in encouraging them to delay their retirement. Moreover, of those ranking this as one of the top two most effective incentives, 72% say it might have prompted them to stay at least two more years with the company.
b.    Half of retirees with a defined benefit pension state receiving a full pension while working part time would have been effective in delaying their retirement (50%), and almost as many feel this way about receiving a partial pension while working part time (44%). Seven in 10 of those rating each among the top two most effective incentives report they would probably have stayed at least two more years if it had been offered to them (72% for full pension, 71% for partial pension). However, this would necessitate a change in federal law and several other compensation-related incentives noted below may be almost as compelling.
c.    38% report that being able to work seasonally or on a contract basis would have been effective in encouraging them to delay retirement. Among those rating this as one of the top two incentives, more than three-quarters (77%) say it might have prompted them to stay with the company two years or more.
3.    Other highly rated incentives include a pay increase (33% of all retirees say it would have been effective, 56% ranking it among the top two most effective incentives might have stayed two years or longer); continuing to receive company subsidized health insurance benefits at the same level as full-time workers while working part time (46% effective, 56% two years or longer); doing more meaningful work (36% effective, 67% two years or longer); locking in pension benefits that were already earned (42% of those receiving pension effective, 54% two years or longer); telecommuting (28% effective, 68% two years or longer); and being able to work part time rather than full time (36% effective, 64% two years or longer).
4.    The timing of the offer of a delayed retirement incentive is important. Nearly two-thirds of retirees (63%) report that these offers would have been a lot more effective if the retiree had known about the possibility in the two years before they communicated their intention of retiring.
5.    In general, workers begin thinking seriously about retirement not long before they actually retire. 22% of the surveyed retirees first began thinking seriously about retiring only six months before they left the company, while another 22% began thinking seriously about it aproximately a year beforehand. 28% started thinking about it 18 months (10%) or two years (18%) before.
6.    One of the primary reasons that aerospace and defense industry company workers retire when they do is because retirement becomes affordable (76% rate it as extremely or very important). The two other reasons for retiring mentioned by a majority of retirees are their job satisfaction (63%) and a desire for more personal or family time (60%). Almost half (46%) say their health was an extremely or very important factor.
7.    36% of retirees with a pension report that a pension-related issue was an extremely or very important factor in their decision to retire. Among those saying this reason was at least somewhat important, 72% indicate that reaching the pension eligibility age was important in their retirement decision. In addition, 46% say they wanted to lock in the benefits they received so that they would not have to worry about changes the company might make. This suggests that some workers may be making retirement decisions based on erroneous assumptions since employers cannot legally reduce pension benefits for past service.
8.    While a majority (54%) was either extremely, very, or somewhat satisfied with their job at the time they made their decision to retire, a sizable minority (46%) indicate they were not too or not at all satisfied. A number of factors appear to contribute to decreased satisfaction among this minority, including not feeling valued by the company or feeling that the work did not have long-term value (64% rate it a ‘4’ or ‘5’ on a 5-point scale), stress (47%), no longer growing or learning (45%), and not enjoying work (45%). In addition, not getting along with co-workers or not sharing their values (30%) appears to be associated with increased levels of dissatisfaction.

2. The Retirement Decision

Reasons for Retirement-Workers of aerospace and defense industry companies retire for many different reasons. Foremost among these reasons, however, is that retirement becomes affordable. Three-quarters of retirees (76%) report that their ability to afford retirement was an extremely or very important factor in their decision to retire. Two other factors are also mentioned by a majority of retirees as reasons for retiring: their lack of job satisfaction (63% extremely or very important) and a desire for more personal or family time (60%) (Figure 1).
Nearly half (46%) say that their health was an extremely or very important reason for their retirement, while roughly one-third each indicate that a consideration related to their pension (36% of those with pension), a desire to do something different (32%), and the health of a spouse or another family member (31%) played a major role. Fewer report that other factors, such as their spouse’s retirement status (20% of married respondents), an early retirement incentive (10%), and other career opportunities (8%), were important.

Figure 1: Factors in Retirement Decision

Source: Employee Benefit Research Institute, 2008 Recent Retirees Survey.

Overall, the propensity to say each reason is important tends to increase with the amount of time spent deliberating the retirement decision and the number of years spent working for the company. It also tends to be higher among those saying their health was a reason for their retiring than among those who did not cite their health.
In addition, the propensity to report each reason as important is generally higher among those at least somewhat satisfied with their job than among those not satisfied. There are several notable exceptions, however. First, the likelihood of citing job satisfaction as an important factor in their retirement decision increases sharply as job satisfaction decreases, from 29% of those extremely or very satisfied to 96% of those not at all satisfied. In a similar but much less extreme fashion, those satisfied with their job are less likely than those who are not to indicate that other career opportunities were important (6% extremely/very satisfied vs. 12% not at all satisfied). Finally, the desire to do something different was more often rated highly by retirees somewhat or not too satisfied with their job (36%) than by those extremely or very satisfied (27%) or those not at all satisfied (30%).
Retirees who do not work for pay in retirement are more likely than their counterparts who do work for pay to give the following reasons were important in their decision to retire: their ability to afford retirement (80% vs. 64%), a desire for more personal or family time (64% vs. 49%), their health (49% vs. 38%), the health of a spouse or family member (33% vs. 24%), and their spouse’s retirement status (23% vs. 14%). On the other hand, those who worked for pay more often report that factors playing an important role were their job satisfaction (66% vs. 62%), a desire to do something different (35% vs. 31%), and other career opportunities (22% vs. 4%). Moreover, larger shares of those who worked for an aerospace/defense industry competitor in retirement than those working somewhere else indicate their job satisfaction (72% vs. 64%), a consideration related to their pension (43% vs. 34%), and other career opportunities (33% vs. 17%) were important.
Married women are approximately three times as likely as married men to give weight to their spouse’s retirement status when considering their retirement decision (45% vs. 16%). Women are also more likely than men to say a desire for more personal or family time was important (64% vs. 59%), but less likely to mention other career opportunities (5% vs. 9%). Those who retired before age 58 are more likely than those retiring later to cite a desire to do something different (36% vs. 30%) and other career opportunities (13% vs. 7%).

Dallas Salisbury is president and CEO of the Employee Benefit Research Institute. The full report by a group of authors is available at www.ebri.org as the July 2008 EBRI Issue Brief Number 319. Thus summary is an extract.
1 It should be noted that the population for this survey was drawn from companies within the aerospace, defense, and national security industries and focused on engineering and technical workers. This means the sample is somewhat atypical of the ‘average’ private-sector worker: Levels of education, training, and pay are higher than average, and pension recipiency is much higher than average in this sector. Also, a significant factor in this industry is the need for government security clearances for the vast majority of workers (since defense and aerospace projects are generally classified). This can have a significant effect on job requirements, working conditions, and pay. The time it takes to hire new workers, the level of skill needed, the difficulty of obtaining security clearances, and the need to facilitate the gradual transfer of institutional knowledge are reasons why employers may want to retain older workers, particularly those eligible for early retirement. Nevertheless, many of the factors identified within this group of workers have obvious relevance to the work force at large and other employers looking to retain older, experienced, or skilled workers.

Multidimensional Perspective on the Well-being of Older People

Asghar Zaidi — Tue, 06 Jan 2009 13:47:45 +0000

1. Introduction

The ageing process begins in childhood and by passing through all different phases of life, and accumulating life experiences along the way, we end up living in old age. The focus of the research work reported here is this old age phase of life. The emphasis on older people is motivated by some well-known stylised facts of contemporary societies.
•    Firstly, the fact that an increasingly longer time of our life is spent in older age makes it more important to gain a holistic understanding of the adequacy of the economic and social resources available and of the dynamics of resources during this phase of later life.
•    Secondly, individual entitlements in old age are, in general, linked to experiences during earlier phases of life, such as the work history, marital association, care responsibilities and residence in the country. An evaluation of personal welfare in old age offers insights into how differential experiences of earlier phases of life and their treatment by the welfare system impact upon resources in old age.
•    Finally, during the latter part of the past century, the trend in longevity gains has been accompanied by a drop in fertility rates. Together, these trends shift the distribution of the population in most developed countries in such a way that the ratio of elderly to non-elderly people, and therefore the average age of the population, is rising. Nor are these trends likely to abate in the near future, so that societies experiencing this demographic shift — commonly referred to as ageing societies — now face new challenges, new policy directions. In this environment, a research focus on older people’s resources is required to design and reform social and economic policies to guard against the unprecedented rise in social expenditures and avoid the moral hazard of poverty in old age.
With these broad motivations in mind, one can identify three specific research issues that are of crucial significance.
1.    Multidimensional perspective on older people’s well-being: how is the information base on older people’s personal resources enriched when economic and health well-being are combined by adopting a multidimensional perspective?
2.    Income experience in old age: what is the income experience during old age, and what factors are associated with income dynamics during the ageing process in the old age phase of life?
3.    Comparative perspective on income dynamics in old age: what is the relative importance of various individual attributes and life events in determining the income experience of older people who live in different regimes of social insurance systems and social assistance provisions?
Research on these three themes is undertaken in Zaidi (2008), and this paper summarises the work carried out under Theme I. Within the context of this research on the well-being of older people in ageing societies, a wide range of definitional, conceptual and methodological issues must be resolved. This involves, among other things, how to define old age, what do we mean by ageing societies, what concepts or theoretical approaches will define the well-being of older people, what empirical methods need to be adopted in measuring well-being of older people, what datasets to use and how best to summarise results and draw conclusions for policymakers. In the rest of this introductory section, the most essential base definitions are discussed, i.e. the definition of older people used and an explanation of what do we mean by ‘ageing societies’.

1.1 Older People

When is someone old? the question seems simple, yet there is no universally accepted age above which a person can be considered ‘old’. The choice most researchers make depends on the nature of the research issue in question rather than on some abstract conception of old age.
For reasons discussed below, this paper makes use of the definition whereby an entry into the old age phase of life is approximated by the chronological age at which people become entitled to the old-age pension. Any such chronological demarcation of old age has a clear implication: old age starts at a fixed age for all people of the same gender, irrespective of their labour market status (e.g. retirement status), state of health (e.g. physical frailty) and family status (e.g. widowed). Thus, tremendous heterogeneity exists from one individual to the other in such a definition of older people.
One vital advantage of the chronological age definition is that age is by definition an exogenous attribute of individuals, whereas other indicators of ageing are endogenously determined. Adoption of this definition allows us to capture diversity within older populations, in terms of labour market activity, health status and income (i.e. the endogenous variables). This choice also enables us to provide important policy-relevant information for the statistical group identified as ‘pensioners’. Moreover, this choice is free from negative biases that arise from common myths and misconceptions about ageing and older people, such as the perception that older people are likely to be frail, ill or disabled, and may thus be a burden on communities and societies.

1.2 Ageing Societies

As mentioned above, during the past two decades, the average age of population is rising in most developed countries. There are two factors behind these trends.
The first factor for an ageing population is increasing life expectancy. The second factor for an ageing population is declining fertility rates. Together, these two trends are shifting the demographic structure of the population so that a greater fraction of the population will be formed by an older population. Between 2000 and 2020, the relative size of the population aged 65 or older in the United Kingdom is projected to increase from 16% to 19.8%, whereas Germany and Japan will observe a much sharper increase (from 16.4% to 21.6%, and from 17.1% to 26.2%, respectively). In 2020, about one-fifth of the population in most of the developed countries will be aged 65 or older. The societies that are experiencing these trends are referred to as ageing societies in the research work reported here.¹

1.3 Datasets in Use

For all empirical results reported here, the ninth wave of the British Household Panel Survey (BHPS), carried out in 1999, is used. This is because the 1999 wave contains the most relevant information for health as well as income data required for the intended empirical analysis. The net income data used are made available by Bardasi, Jenkins and Rigg (2003). Next, the essential choices concerning the conceptualisation and measurement of the personal well-being of older people are discussed.

2. Conceptualising and Measuring Older People Well-being

2.1 Concepts

The concept of well-being has different meanings for different people, as each will have its own interpretation of what constitutes different domains of well-being, what are the important determinants of well-being in each domain and the relative weight that should be assigned to each of these dimensions. Moreover, different disciplines (most notably, economics, psychology, philosophy, and sociology) provide different notions of what constitutes and determines personal well-being. The coverage here is selective in reviewing approaches to conceptualising economic well-being only, and in extending it to well-being with respect to health.
In the strictest utilitarian tradition of welfare economics, well-being is argued to be the utility derived from consumption. In understanding consumption, one needs to review the salient features of the life-cycle hypothesis. The conclusion that can be drawn from such a review is that the consumption of older people will be determined not solely by their current pension income but by their past and expected streams of income. Assets and wealth that are accumulated during the higher income periods of working age will serve as possible means to finance consumption in old age. The phenomenon of consumption smoothing is very relevant in the study of personal welfare, and for that reason, consumption can be considered a preferable measure of older people’s well-being.
Sticking to the sphere of economic well-being, standard of living is the other often used concept. Standard of living can be seen in terms of command over economic resources, along with the rate at which individuals can convert these resources into a standard of living. Given its emphasis on the outcome measure, the standard-of-living approach is in line with the first approach in which the utility drawn from the actual consumption has been emphasised. The parallels between the two approaches discussed above are apparent from the fact that consumption is also a measure of the standard of living attained.
Income also serves as a measure of the standard-of-living attained, and it is preferred principally on the account that it assigns importance to capturing the economic distress that may be caused by short-term fluctuations in resources, irrespective of whether those variations are smoothed by consumption or not. Thus, the economic disutility caused by income shocks will be fully accounted for, irrespective of the experience of consumption smoothing during periods of income volatility. Based on these arguments, and because of constraints on the availability of data on personal total consumption, income is used as a measure of personal well-being of older people in the empirical research reported here.
Health is also identified as an important dimension of the personal well-being of older people. This is mainly because health affects individuals directly as well as through its impact on other dimensions of well-being. Thus, well-being with respect to health should be assessed in its own right and on how it affects economic well-being. In measuring health, the analysis of physical and mental dimensions of health should be supplemented with the analysis of social health that includes wider considerations of independent living and social interactions.
The conceptual advantages offered by the capability approach of Sen have also been reviewed in detail in the book. The approach provides additional, and compelling, arguments to identify variations in individual attributes and circumstances, and how these differences explain varying degrees of utilization of means to the specific end of well-being in terms of living standards attained. It also brings to the fore the element of freedom that people may exercise in choosing a life they have reasons to value, thus it is the opportunity or freedom aspect that determines well-being, and not what is revealed in a person’s actual preferences.
The review of the capability approach, for its emphasis on attributes that affects one’s capability in converting economic resources to the end of standard of living, has shown that health attributes are important factors in attaining, or have the opportunity to attain, the goal of a decent standard of living. It can be concluded that the multidimensional measure, in which well-being with respect to health is combined with the economic well-being, will provide a useful approximation of the capability-based measure of older people well-being.

Asghar Zaidi is a Senior Economist at the Social Policy Division, OECD, Paris and he is also Director Research at the European Centre Vienna. He is currently the Vice-President of the International Microsimulation Association, and also the co-editor of the forthcoming book “New Frontiers in Microsimulation Modelling”. He has also recently co-edited the book “Mainstreaming Ageing. Indicators to Monitor Sustainable Policies”. He is a Research Affiliate at DIW Berlin and at the Centre for the Analysis of Social Exclusion, LSE, London.
The views expressed in the book are those of the author, and neither the OECD nor the other organisations with which the author is affiliated take any responsibility with regard to data used and/or interpretations made. The author takes full responsibility for any remaining errors and/or omissions.
1 For a discussion on features and challenges of population ageing using the European perspective, see Zaidi and Sidorenko (2008).