Issue #24, Spring 2012

A Subsidy for Dignity

A successful idea from Europe can make eldercare more affordable—and provide well-paying jobs—as the boomers approach retirement.

The federal government would provide state governments with funding for eldercare services in the form of Dignity Vouchers. Qualified retirees would be able to use the Dignity Vouchers to purchase a limited number of hours of non-medical personal assistance in tasks like housekeeping and transportation from personal-service companies that are certified by federal and state governments. The Dignity Vouchers would permit retirees to pay less than the minimum wage to the employees of the personal-service companies, while the companies would be required to pay above the minimum wage. Government would pay the service companies the difference between the voucher payment and the employee’s wage. Congress or states may choose to require employers to provide specific benefits to workers (health care, pensions) or limit overhead costs as a percentage of the value of services provided.

In order to minimize any possible abuse while maximizing effectiveness, an experimental Dignity Voucher program needs to be carefully designed.

Qualified Employers The subsidy must go to a government-licensed company that employs the service providers (care workers), not directly to the recipients or the providers. That will ensure that the money is not used for off-the-books payments to black-market labor. It would also ensure that the employers obey federal and state workplace, civil rights, and minimum wage laws. Qualified employers would be eldercare service companies that are licensed by the states and meet all local, state, and federal requirements. They should be regularly audited, in order to deter abuses of the system, and could be private or public entities. The decentralized Swedish example may be a good model for the Dignity Voucher program because it pushes private-sector competitive efficiencies and job creation but avoids the type of cost escalation seen in the U.S. health-care system. In fact, because the United States has a larger existing pool of private eldercare providers than Sweden did at the outset of reform, the provision of vouchers can more quickly stimulate competition and growth in the sector, making it an appealing job-creation option.

Qualified Activities Just as in each of the models outlined above, non-medical activities that qualify for subsidy under the Dignity Voucher program would be defined by federal and state law. They might include personal assistance in housework, transportation, cooking, and other chores. Medical assistance should be excluded from the Dignity Voucher program as that would be covered by Medicare and Medicaid.

Qualified Recipients Qualified recipients should include the middle-class elderly as well as the low-income elderly, but a means test might exclude affluent retirees. The Dignity Voucher program might also include the disabled of all ages. Because need is more easily determined by local officials, the qualification of recipients might be left to state or local governments (like the municipal government evaluation of individuals in Sweden), even though the funding comes from the federal government. However, individual evaluation or means testing could undermine political support for the program, and it would also significantly increase its administrative costs. Awareness campaigns—the responsibility of local governments, although qualified employers will have a vested interest in advertising their services to qualified recipients as well—could target qualified recipients.

Qualified Providers To work, the Dignity Voucher program must operate in the formal sector, and the Belgian case shows that integrating service workers into the social welfare system (Social Security, Medicaid, unemployment insurance, etc.) is key to drawing workers out of the informal sector and protecting them from exploitation. Service workers in the Dignity Voucher program must therefore be qualified providers: qualified by state standards and given all of the rights and responsibilities of employees under federal law. Qualified providers, or service workers, would further be limited to U.S. citizens or legal immigrants. During the initial phase of the program, preference might be given to individuals who have suffered prolonged periods of unemployment during the present recession.

The benefits of Dignity Vouchers or similar service vouchers in the United States would not be limited to new kinds of decent jobs for domestic service workers and access to needed aid for the elderly. In Europe, service-voucher programs have had some success in shrinking black markets in labor by reducing the demand for extra-legal employment. Evaluations of the Belgian voucher model show that a significant portion of the cost of the program to the government—at least 40 percent in the Belgian case—can be directly offset by increased revenues and decreased tax expenditures. These offsets largely depend upon how successful the program is in formalizing gray-market eldercare, and thus increasing income-tax receipts and reducing benefits paid to unemployed or underemployed individuals.

A service voucher program like the Dignity Voucher program that we propose could deter illegal immigration to some degree by reducing the demand for off-the-books labor. The Dignity Voucher program would allow the elderly to pay less than the minimum wage to U.S. citizens and legal immigrants who, thanks to the government subsidy to the service company employer, would be paid above the minimum wage. Paying the mean national caregiver wage would help ensure that government subsidies do not serve to undercut existing caregivers or create a situation in which service workers are unable to earn a living wage and become dependent upon other government aid.

The automation of recipient selection (perhaps using the Social Security Administration) and implementation of the program also reduces administrative costs. For example, the French model seems to lower the costs of being in the formal sector for both workers and recipients. On the supply side, social security contributions of workers in France are calculated automatically with the prepaid CESU card, and on the demand side, the system promotes direct hiring and payment of service workers, potentially lowering costs and hassle for service recipients, who have a free choice in purchasing services.

Tested Abroad, Needed Here

The United States should learn from the success of other nations that have adopted service-voucher programs. Like other countries, the United States must address both unemployment and the challenges presented by an aging population. Claims by politicians, pundits, and policy analysts that a “twofer” policy proposal can solve two problems at the same time should be subject to critical scrutiny.

We believe that our proposal can withstand the test. Increasingly, our economy will be dominated by personal services that cannot be automated or offshored, and a large part of the service economy will be driven by demand for eldercare services generated by the aging baby boomers. This demand is currently being met in part by family caregivers as well as the informal labor market. U.S. businesses lose worker productivity and pay higher health care costs for employees providing caregiving at home, while black-market labor costs local, state, and federal governments tax revenues. Existing respite-care programs for caregivers are inadequate and could be supplemented or replaced by a service-voucher program.

The Dignity Voucher program proposed here should be tested as a pilot program. If it is considered a success, then Congress should consider scaling it up and making it a permanent part of America’s system of social insurance, addressing the previously unmet needs of many elderly Americans for modest personal assistance by a mix of public funding and private provision. The cost of the program would depend on its scale. Some, if not necessarily all, of the costs, could be offset in the federal budget as a whole by savings in unemployment payments or by reductions in tax expenditures for home ownership and health care that disproportionately benefit the affluent. An American service-voucher program could be paid for by a small, dedicated payroll tax, by another dedicated tax like a portion of a federal value-added tax, or by general revenues.

Tested abroad and needed here, service vouchers can provide a new and useful tool in the repertory of American public policy. A service-voucher program of this kind would accomplish multiple goals. It would increase demand for low-wage service sector workers. At the same time, it would provide indirect financial assistance to elderly Americans who are capable of functioning and living in their own homes but need occasional personal assistance that they cannot afford on their own. It would help American families by reducing the burden of supporting their elderly relatives. Finally, it would generate tax revenues, as informal, off-the-books, underpaid labor is replaced by adequately paid labor in the formal labor market. The use of service vouchers to create jobs while helping the elderly is exactly the kind of bold new idea that America desperately needs today.


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Issue #24, Spring 2012
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Bob Konrad:

This seems like an eminently sensible proposal.

Mar 24, 2012, 4:17 PM

Something "camel's nose in the tent" about the voucher case being made. Would wager that Paul Ryan can hardly contain himself.

That said, I'll keep an open mind.

Mar 26, 2012, 10:58 AM
Kirsten Dens:

I remember the subsidized vouchers for domestic services when they came out in Belgium. It was a perfect service!!

Aug 16, 2012, 6:03 PM

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