We estimate a linear version of the almost ideal demand system for the long-term care (LTC) sector in Norwegian municipalities. The data used are publicly available data downloaded from the statistics bank of Statistics Norway. Estimation is carried out by means of STATA. Various estimation techniques are used, like OLS, seemingly unrelated regressions, maximum likelihood, and instrumental variables. The results are in general, statistically precise and robust, and indicate that home care is a luxury, while nursing home care is a necessity. Hence, an increase in a municipality’s LTC-expenditures will lead to a substantially stronger expansion in home care than in nursing home care. Seen in relation to municipalities’ total net revenues, however, both home care and nursing home care seem to be necessities. The estimated price elasticities indicate that municipalities to a limited degree substitute high-cost nursing home care with more home care. For both types of care, high unit costs seem to be accommodated by a smaller volume of the same type of care.

We found evidence that Norwegian municipalities seem to function quite well as an insurance mechanism for LTC, but there is not full insurance. The internal resource allocation processes in municipalities are the most important element in the insurance of those in need of LTC. That Norwegian municipalities are compensated by the central government for having an old population seems to play a modest role in the quantity of resources allocated to LTC.

An innovation in this paper is to replace traditional age-class variables by a variable that measures the number of individuals expected to die within one year. Our results clearly indicate that this measure has many advantages compared to traditional age-class measures used by most researchers. Not only did this turn out to be a statistically superior measure, it is also a much more intuitive measure, and in line with the arguments made by Zweifel et al. (1999) that proximity to death matters more for the use of health care than does distance from birth.

Many of the results obtained in this paper may be of relevance for other countries where LTC is provided through local governments, particularly the other Nordic countries, and perhaps also the UK. Among these countries, the variation in political-administrative systems is not much larger than the variation among Norwegian municipalities. Nevertheless, it would be interesting to see replications of the present study based on data from these countries.