The Economic Costs of Informal Elder Caregiving

By Rubin, Rose M. | Business Perspectives, Fall 2002 | Go to article overview

The Economic Costs of Informal Elder Caregiving


Rubin, Rose M., Business Perspectives


Increase in life expectancy (in the past century) have extended the average life span almost three decades, so that the average American now has a life expectancy approaching 80. Large numbers of individuals also live well into their 80s and many into 90s. The U.S. population aged 65 and over is projected to grow from 34.6 million in 1999 to 40.4 million in 2011, to 70.3 million in 2030, and to a staggering 82.0 million by 2050 (Wells, 2000). However, as American enjoy the gifts of expanded and healthier longevity, the challenges of caregiving for a growing elderly population continue to escalate. The demands of elder caregiving result in increased intergenerational transfers of time and effort and generate substantial costs both to society and to the private sector, including households and businesses.

Background

Contrary to popular belief, most long-term care services in the U.S. are provided informally by relatives and friends who are not paid for such services (Shi & Singh, 1998). Although concerns about long-term care generally focus on nursing homes, almost four-fifths (78.0 percent) of the disabled or chronically ill elderly actually remain in the community (i.e., are not institutionalized) (Ettner, 1996), and most of their care is provided by family and friends on a non-market basis. This unpaid care constitutes informal home health care, whereas formal home care involves a paid or reimbursed agency and independently provided home health care.

Informal caregiving is the sole care received by 70.0 percent of disabled elderly, and 27.0 percent receive both formal and informal caregiving (Ettner, 1995). Nearly one-fourth of U.S. households had at least one person who provided elder care in 1996 (MetLife, 1999; Wells, 2000). The benchmark 1997 National Alliance for Caregiving (NAC) and AARP (NAC-AARP) survey of elder caregivers concluded that over 22 million households provide care for an older adult. Further, 64.0 percent of these caregivers are employed, 52.0 percent full-time and 12.0 percent part-time. The average duration of elder caregiving is 4.5 years, with a mean of almost 18 hours per week.

Because informal caregiving does not involve market transactions and it is generally socially and politically invisible, its economic value to society is largely ignored. To determine the value of informal elder caregiving, Arno, Levine, and Memmott (1999) used an hourly wage rate of $8.18 and an estimate of 25.8 million caregivers providing an average of 18 hours of care weekly. They estimated the unpaid cost of elder care is $196 billion annually, which is two-thirds more than the total cost of formal home health care ($32 billion) plus nursing home care ($83 billion). While informal caregiving generates a tremendous, albeit uncounted, value to society, it also produces significant social costs, as well as costs to employers and to caregivers.

Social Costs of Informal Elder Caregiving

Formal (paid) caregiving increases Gross Domestic Product (GDP) as it contributes to the value of service production. However, informal caregiving is likely to decrease GDP, as unpaid caregivers reduce work hours or leave the labor force. The lost productivity cost of elder care is calculated to range between $11.4 and $29.0 billion per year (MetLife, 1997), which provides only a first approximation of the actual value of final output foregone due to elder caregiving.

The demands of caregiving reduce the labor supply, particularly of women. One-tenth of workers who provided elder care permanently gave up employment (3.6 percent took early retirement and 6.4 percent left the labor force) (MetLife, 1997). Reduction in the labor supply not only decreases GDP, it also causes foregone tax revenue from decreased earnings. Further, declines in labor force participation are likely to increase public support for caregivers due to their reduced income. …

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