From each according to means, to each according to needs? Distributional effects of abolishing asset-based payments for residential care in Austria

Most countries in Europe require out-of-pocket payments (OPPs) for nursing homes based on users' income and often assets. This was also the case in Austria until 2018 when asset-based contributions to residential care -denoted the 'Pflegeregress' - were abolished, leaving a shortfall in revenue. We aim to determine how the Pflegeregress was distributed across different groups in Austria prior to 2018, what the distributional consequences of its abolishment were, and what the distributional impact of different financing alternatives would be. Circumventing data availability issues, we construct a micro-simulation model using a matched administrative dataset on residential care users receiving the Austrian care allowance (Pflegegeldinformation, PFIF, HVB, and Pflegedienstleistungsstatistik, Statistik Austria) and survey data (SHARE, wave 6). Using this model, we estimate the expected duration of residential care and OPPs under the Pflegeregress of a representative sample of older people aged 65 + in Austria, as well as OPPs under budgetary neutral financing alternatives to the abolished asset-based contribution, namely an inheritance tax and a social insurance scheme. The distributional impact of abolishing the Pflegeregress and these alternative scenarios is assessed through a number of measures, such as ability to pay, Concentration Indices (CI) and a needs-standardized measure. We find that lower income individuals and homeowners disproportionately contributed to asset-based OPPs for residential care prior to 2018, due in large part to their higher use of residential care and the low asset-exemption thresholds. These groups were therefore the largest beneficiaries of its abolishment. The alternative financing scenarios tested would result in a more progressive distribution of payments (i.e. concentrated on more affluent individuals). Our findings indicate the limited ability of asset-based OPPs to target those with higher assets, thus questioning the fairness of these instruments for financing residential care facilities for older people in Austria. Findings also suggest that the parameterization of such OPPs (such as asset exemption thresholds) and patterns of residential care use are key variables for assessing the distribution of asset-based OPPs for residential care use. Policy alternatives that decouple payments from use would entail greater transfers from healthy to less healthier individuals.