#Policy: Long-Term Care Insurance in Crisis: How Much Longer Can the State Step In?
Axel Mühlbacher

#Policy: Long-Term Care Insurance in Crisis: How Much Longer Can the State Step In?

Introduction: The Illusion of Stable Long-Term Care Insurance

The financial situation of Germany's long-term care insurance system is strained, which should hardly come as a surprise. For months, health insurers and social associations have been warning that long-term care insurance revenues are no longer keeping up with steadily rising expenses. Faced with looming insolvency, these organizations are now urgently calling for immediate measures from the federal government. However, this issue reveals a deeper, systemic problem: the widespread assumption that the state has unlimited resources to cover care costs over the long term. This "myth" of comprehensive state support shapes the behavior of many citizens—pushing aside personal responsibility for one’s own financial security. But how much longer can the state uphold this illusion, and what does it mean for citizens, care recipients, and healthcare professionals?

The Funding Gap in Long-Term Care Insurance

Germany’s long-term care insurance system is under growing financial strain. Major reasons include an aging population and sharply rising costs within the care sector. Due to the severe shortage of skilled care workers, wages are rising—rightfully so—while demands on and costs for care facilities continue to increase.

Representatives of the statutory health insurance system emphasize that the financial state of long-term care insurance is critical, calling for a contribution increase of at least 0.25 percentage points to secure short-term liquidity. Health insurers are also demanding that the federal government assume responsibility for COVID-related costs and contributions to pension funds for family caregivers. This financial burden will be challenging to manage through contribution increases alone, highlighting the need for a fundamental overhaul.

The “Myth” of State Responsibility: Public Support or Personal Savings?

Many citizens rely on the assumption that the state will step in financially if they need care, covering the costs. However, this belief often prevents people from building savings for future care needs or purchasing private supplemental insurance. Germany's long-term care insurance is a “partial coverage” system—it only covers part of the care costs and assumes that patients and their families will contribute the remainder. The growing demand for care and the lack of personal financial planning further exacerbate the funding gap—a situation that social associations have been criticizing for years.

Germany’s Social Association (SoVD) calls for a reform toward a comprehensive long-term care insurance model that would cover all care costs. This would require all citizens—including those with private insurance, the self-employed, and civil servants—to contribute to long-term care insurance. However, even with all citizens paying into a “citizens' insurance” fund, structural issues remain, as demographic shifts are creating an imbalance between contributors and beneficiaries.

Lack of Consideration for Willingness to Pay and Acceptance by Care Workers

A key issue with the current funding system is the lack of consideration for citizens’ willingness to pay, as well as for the needs of care workers. Most people don’t consider future care costs as long as they are young and healthy. Meanwhile, care workers are often dissatisfied with their working conditions and pay. The shortage of staff and high turnover rates exacerbate these challenges, requiring sustainable solutions.

Short-term relief for care recipients through government subsidies and cost caps may reduce out-of-pocket expenses, but it also diminishes the motivation for personal savings. Furthermore, the staffing shortage in the care sector is not just an issue of wages but also one of societal recognition of the profession’s value. Without genuinely considering the preferences and needs of care workers, it will be challenging to secure long-term care.

The State’s “Emergency Fix”: Solution or Temporary Band-Aid?

The German government is currently working on an “emergency fix” to temporarily secure long-term care insurance’s solvency. However, this urgent funding will cost billions, raising doubts about whether it addresses the structural issues. While the health ministry assures that solvency is safeguarded, questions remain about how sustainable this model truly is.

Short-term measures only address the symptoms of the crisis. Without a structural overhaul that incorporates citizens’ personal responsibility, the funding gap in long-term care insurance will continue to widen. The question then becomes: can Germany continue relying on the state as a “safety net,” or are new models needed to bolster personal savings and private supplemental insurance?

Behavioral Economics and Nudging as Potential Solutions

One solution lies within behavioral economics, specifically “nudging” strategies, which could motivate citizens to set aside funds for their future care without feeling coerced. For example, an automatic savings plan could be set up at a certain age, requiring active choice to opt out.

Additionally, tax incentives or government subsidies for private long-term care insurance could provide incentives for individuals to take on more responsibility for their own financial security. These models would help relieve the state and distribute financial risks more equitably across a broader population.

Medical Savings Accounts as a Model for Germany?

The introduction of Medical Savings Accounts (MSAs), similar to those in Singapore, could further strengthen citizens’ sense of personal responsibility. In Singapore, employees and employers contribute to individual health savings accounts, which are then used for future healthcare expenses. This capital accumulation model increases awareness of healthcare costs while reducing pressure on the state. Switzerland’s occupational pension system follows a similar model, where citizens build up savings to cover future healthcare expenses independently.

Key Aspects of the MSA System:

Funding Through Personal Savings: Health costs are partially shifted to citizens, raising awareness of personal expenses and fostering individual responsibility.

Personal Contribution: The traditional care insurance does not cover all healthcare expenses, meaning citizens must pay for certain services themselves, helping to manage costs and curb overuse.

Lifetime Capital Accumulation: Early tax-free savings build up capital, ensuring that funds are available when healthcare needs and care costs increase with age.

A similar system in Germany could encourage citizens to save for future care needs. The MSA model combines personal responsibility with targeted government support, ensuring a baseline of security.

The Role of the State: Safety Net and Targeted Subsidies

A purely savings-based system might be difficult to implement in Germany, so ongoing state support would still be necessary. In Singapore, government subsidies are provided for outpatient and inpatient care to ensure that low-income individuals can access healthcare services. Germany could adopt a similar approach by offering targeted support programs or tax refunds for low-income households, making the transition to a savings-based model more socially inclusive.

For particularly costly treatments, a high-risk insurance option—such as Singapore’s “MediShield”—could be introduced. This type of insurance steps in when savings are depleted, ensuring financial protection for serious health conditions.

Savings Accounts as a Steering Mechanism: Better Reflecting Citizen Preferences

A savings-based model, such as Medical Savings Accounts (MSA), offers the benefit of better reflecting individual citizens’ preferences. Unlike a purely tax-funded or state-mandated system, citizens in an MSA model can build savings independently and decide how to use these funds. This approach not only increases personal control but also allows for tailored use of healthcare services to meet personal needs and preferences.

By managing their health savings accounts, citizens can thoughtfully consider when and for which treatments they want to use their funds. Such accounts provide a clear incentive for efficient and cost-conscious use of funds, as savings are protected for future healthcare or long-term care needs. Citizens with higher demand for certain health services, or those wishing to save for specific preventative services, benefit from this flexibility and autonomy.

By giving citizens more choice and control, the healthcare system is also relieved as funds are used more deliberately, and overall costs in the system can be better managed. An MSA model thus enables an individualized approach that state systems find difficult to achieve—a crucial step toward a socially just and financially sustainable care system.

Conclusion: A Model for the Future of Long-Term Care Funding

Implementing Medical Savings Accounts, inspired by Singapore’s MSA and Switzerland’s occupational savings model, could sustainably relieve Germany’s long-term care insurance system. Early personal savings would reduce dependence on state support and promote individual responsibility, while a government-backed safety net would provide protection for those unable to save adequately.

A sustainable long-term care system requires a combination of capital-based models, targeted government support, and incentives for personal savings. Only by redefining the balance between state support and individual responsibility can Germany build a robust and socially equitable system for funding long-term care.

Axel Olaf Kern

Professor at University Ravensburg-Weingarten

4 个月

clear as dumpling soup - both taxes and mandatory social security contributions must first be earned by industry. It ends up as left pocket right pocket zero-sum game :-) but politics ...

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