Policy makers in North America and Europe have long viewed care provided to the elderly by unpaid family members as an untapped economic resource. This article addresses the extent to which unpaid care by adult children is associated with reduced formal health care utilization in the United States. Authors find that elderly recipients of unpaid care use significantly less of most types of health care services. Despite this, the use of tax incentives to increase the service commitments of unpaid family members may not be cost-effective if it results in reduced hours of paid employment.

Background: Policy makers in North America and Europe have long viewed Care provided to the elderly by unpaid family members as an untapped economic resource. Many governments are currently reviewing economic incentives to encourage unpaid caregivers to increase their service commitments to family members, through instruments such as tax credits. This article addresses four important issues related to these incentives in the United States: (1) To what extent does unpaid care by adult children reduce the use of the formal health care system among their elderly parents? (2) What types of system utilization are impacted? (3) Is the decision to provide unpaid care made independently of decisions surrounding the use of the formal healthcare system? (4) Given points 1-3, under what circumstances do tax incentives for unpaid caregivers present cost-savings for the government?

Methods: Study subjects were limited to single elderly care recipients aged over 70 with adult children in the United States. The authors tested the impact of unpaid care on five types of formal health care utilization by the recipient: homecare services; long-term care; hospital inpatient care; hospital outpatient surgery; and physician visits. Utilization was measured using a sample of 4752 care recipients from two nationally representative surveys dated 1995 and 1998. Unpaid care was measured as the number of hours in the previous month that a child provided assistance. Formal home care services were limited to unskilled services provided to assist recipients with activities of daily living and instrumental activities of daily living. The use of other types of formal health services was based on any use during the previous two-year period. A single caregiver and the remainder by two to seven caregivers provided seventy-eight of unpaid care. On average, care recipients received 65.7 hours of unpaid care per month.

Findings: (1) Unpaid care partially substitutes formal care for most types of health services. (2) A 10% increase in unpaid care hours reduces the likelihood of having any formal unskilled home care services by 0.87 percentage points (from 8.30% to 7.43%) and reduces the number of nights in long-term care from 25 to 23 nights. In addition, parents with unpaid caregivers have shorter lengths of inpatient hospital stay (2.4 nights) than those who do not (7 nights). Unpaid care also reduces the number of visits to physicians. However, unpaid care increased the likelihood that a parent would receive outpatient surgery from 14% to 30%. (3) Decisions regarding the use of unpaid care and paid care are made together, rather than independently, and there is no clear direction of causality between them. (4) While using incentives to encourage unpaid caregivers to increase their services would represent cost savings to Medicare in terms of reduced service utilization, lost tax revenues resulting from caregivers leaving their paid employment would result in an overall net cost to the government. Only tax incentives geared at caregivers who were not employed would represent net cost savings.

Conclusions: Services provided by unpaid caregivers to elderly parents represent important savings in public health expenditures in the United States by reducing overall use of formal services. However, creating tax incentives to encourage these caregivers to increase their service commitments may come at a net cost to society, if it results in reducing hours of paid employment or leaving the labour market entirely. The government should explore broader societal effects when designing tax instruments to encourage further commitments by unpaid caregivers.

Reference: Van Houtven, CH, Norton, EC. "Informal care and health care use of older adults". Journal of Health Economics. 2004, 23: 1159-1180.

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