Costs of Care

Costs of care for elders with and without dementia have also been studied, with estimates made of the value of the informal care provided. Several years ago, Massachusetts Elder Health Project (MEHP) data were used to estimate costs of care for community-residing disabled elders (Harrow et al., 1995). The cost of informal caregiving hours was calculated using a market value approach. The costs of formal services were calculated using actual hourly rates for each type of service used. The total economic costs of community care (both informal care and formal services) were estimated at $9,552/year (in 1991 dollars). About 80% of these costs were for informal care, representing no expenditure of real dollars by individuals or by the government. As might be expected, cost estimates for informal care of elders with Alzheimer’s Disease are substantially higher, estimated by others in 1991-1992 to be between $43,600 (Max et al., 1995; Rice et al., 1993) and $38,900 (Weinberger et al., 1993). Similarly, from 80-90% of these costs were for informal care.

The MEHP cost estimates for type of care provide an interesting picture of how resources, both informal and formal, are being spent on community care. There is a consistent pattern over time, and for both informal care and formal services, for the majority of resources to be spent on housekeeping, personal care, and meals, in that order. Of interest here is that the majority of both informal and formal resources are expended in these areas of care. In other words, formal services are used to supplement care provided informally rather than to complement the informal care. This suggests that formal services are used where needs are greatest rather than to provide care for which services are best suited as proposed by Litwak (1985). These results also suggest that demand for services, particularly if the availability of informal care is diminished in the future, will be the greatest for home health aides, homemakers, and home delivered meal services.

MEHP data were also used to compare cost of community care to that of nursing home care. Two scenarios were compared to nursing home costs: 1) total actual costs of informal care and formal services, and 2) a simulation of all care provided by formal services only (Table 3). Average cost of nursing home care in Massachusetts in 1991 was $35,522. As previously stated, actual total costs of community care (both informal and formal) was $9,552. However, if all of this care were provided by formal services, the cost would be $13,799. While these costs for formal services are almost 50% higher than for combined informal care and formal services, the costs for meeting all of the elder’s needs with formal services was less than half the cost of nursing home care. Even adding $7,200 for out-of-pocket expenditures on food and shelter, as taken from the Consumer Expenditure Survey (U.S. Bureau of the Census, 1992), community care was still less expensive than nursing home care for most disabled elders. It was only when an older person was severely disabled and required about 40 hours of care per week (equivalent to a full-time job for a caregiver) did the cost of community care plus living expenses approach or exceed the cost of nursing home care.

Most recently, the NAC/AARP data were used to develop a national estimate of the economic value of informal care (Arno et al., 1999). Using a market wage approach and a single wage rate, they developed three estimates – low, mid-range, and high – of the value of care (Table 5). Based on 17.9 weekly hours of care at $8.18 hourly wage and 25.8 million caregivers, the mid-range national estimate of the economic value of informal care in 1997 was $196 billion. Comparing it to available national spending for home care ($32 billion), nursing home care ($83 billion), and total health care ($1,092 billion), we see that the economic value of informal care is equivalent to approximately 18% of national health care spending and exceeds spending for home care and nursing home care combined.