Many developed economies have introduced comprehensive Long-Term Care Insurance (LTCI) programs to handle the mounting costs of an aging society. In systems like Japan’s and Germany’s, citizens contribute to a mandatory social insurance fund throughout their working lives. When they reach older age and require physical or cognitive support, this fund subsidises up to 90% of their senior homes, nursing care, or helper service fees.
Because the state-approved insurance fund covers the bulk of the social care fees, the consumer pays only a fraction of any cost increases. Consequently, when a state-backed insurance fund or private insurer covers the bulk of the social care fees, the price elasticity of demand for premium elder-care services can be very low, whereas the income elasticity of demand for these services is likely to be high. Over time, as household incomes rise, families increasingly seek out premium packages containing daily recreational activities, private suites, and advanced physiotherapy, driving up total national expenditure on elder care.
Distinguish between price elasticity of demand and income elasticity of demand, and analyse why, when elderly care is heavily covered by insurance schemes, the price elasticity of demand for care services might be 'very low' while the income elasticity of demand is 'likely to be high' (Extract F, paragraph 2).
