Introducing an asset test into client fees for long-term social care: a simulation study using Finnish administrative data

As the population ages and the sustainability gap in public finances in Finland widens, new solutions are needed to ensure sufficient funding for public services. One potential solution is to place greater emphasis on private wealth in the financing of care services. At present, client fees for long-term social and health care services in Finland are determined based on clients’ income. This study examines the potential effects of also taking clients’ assets into account. We focus on the fiscal and distributional implications of such a reform. The analysis is based on the SOTE-SISU static microsimulation model and unique administrative register including wealth.

Due to the limitations of wealth data, the analysis concerns clients’ financial wealth in the form of investment funds, shares, and investment properties. Together, these account for slightly less than one-third of the total wealth of people aged 65 and over. The main component of wealth—owner-occupied housing—is excluded from the analysis. In the simulation, wealth was taken into account by adding 15 per cent of assets exceeding €15,000 to annual income, following the formula used in the housing allowance for pensioners.

According to the results, the total amount of client fees collected for long-term residential care would increase by approximately 12 per cent under the reform. The increase is substantial considering that the change would affect only about 14 per cent of clients and that the types of assets included in the analysis represent only a small share of older people’s total wealth. Among clients whose wealth would be considered, the fees could rise considerably (average increase €830 per month, +88 %). The largest number of affected clients would be found in the third income decile, which also has the highest prevalence of residential care users, while the probability of being affected increases with income level. Following the reform, the out-of-pocket financing of residential care would rise from about 16 per cent to 18 per cent.

The static simulation is indicative as it does not account for potential behavioural or other dynamic changes—for instance, changes in how older people might use, transfer, or convert their wealth, or shift toward private services. On the other hand, the analysis covers only a limited subset of household wealth, and future cohorts of care users are likely to be both larger and wealthier than those in 2022 data.