Demographic change and the future of Austria's long-term care allowance: A dynamic microsimulation study

Europe's demographic shift is putting increasing pressure on long-term care (LTC) systems and raising concerns about the sustainability of LTC financing. This paper analyses Austria's LTC system, particularly its universal long-term care allowance (LTCA), and uses a dynamic microsimulation model to project LTCA expenditure under four scenarios up to the year 2080. Using pooled data from the Survey of Health, Ageing and Retirement in Europe (SHARE), we estimate care needs and prevalence rates across all seven care allowance levels. This enables us to project both public spending and individual lifetime costs, disaggregated by sex and education. Although total LTCA expenditure is projected to rise due to population ageing, scenario comparisons show that compositional shifts - such as higher educational attainment, which is linked to lower care needs, and gains in healthy life expectancy accompanying mortality im- provements - can significantly mitigate cost growth. The projected total expenditure increases range from 29 percent in a scenario where increasing life expectancy - as assumed in official population projections - is neglected, to 185 percent in a scenario accounting for rising life expectancy but no future health gains. The findings also highlight the impact of longevity and education on the distribution of individual lifetime costs. Beyond its policy implications for LTC planning, the study demonstrates the advantages of dynamic microsimulation in capturing individual-level heterogeneity, offering a significant improvement on traditional macrosimulation approaches.