Long-Term Care Insurance Crisis: Billions in Additional Costs Loom, Demanding Urgent Reform

Germany's statutory long-term care insurance (Pflegeversicherung) is in urgent need of reform. This is the stark warning from Gernot Kiefer, Vice-Chairman of the National Association of Statutory Health Insurance Funds (GKV-Spitzenverband), in a recent interview. The social scientist cautions that without reform, costs will explode at the expense of contributors, care recipients, and their families. "The problems are so severe that they no longer tolerate delay," states Kiefer's diagnosis. Inaction is not an option.

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Kiefer initially offers some reassurance: the finances of the long-term care funds are developing better than expected this year and next. Pandemic-related expenses this year will amount to five billion euros instead of the expected six billion, as a strong economy channels more funds into the care funds. However, a shortfall of around two billion euros is already projected for 2022—not including pandemic expenses.

Proposed Solution #1: Increased Federal Funding

Kiefer's first proposed solution is more money from the federal government. The funds advocate for the federal government to participate more strongly and permanently in expenses that do not belong to the core tasks of long-term care insurance, explains the official. An example is the pension contributions for family caregivers, which alone will amount to three billion euros next year. These contributions are a state social benefit and must be counter-financed by a federal subsidy.

The Burden on Care Recipients: Skyrocketing Out-of-Pocket Costs

Kiefer criticizes that the rising costs in long-term care insurance are currently shouldered primarily by care recipients and their families. Indeed, the out-of-pocket contributions (Eigenanteile) paid by those in full-time residential care homes have been rising sharply for years. As of July 2021, an average of 2,125 euros per month had to be paid nationwide, according to data from substitute health funds. In July 2018, it was 1,795 euros: an increase of nearly 18.4% in just three years.

While the care-related portion of these costs will be capped after a legal reform—decreasing by 25% in the second year, by half after 24 months, and by 75% after 36 months—this will only partially relieve care recipients. Additional costs for accommodation, food, and especially investment fees charged by care homes are added to the out-of-pocket share. The investment fee alone currently costs care recipients 450 euros per month, reports Kiefer. Here, the federal states must fulfill their obligation to invest more in care infrastructure.

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The Call for Socially Balanced Reform and the Threat to Premiums

"The new coalition must significantly and socially balance the reduction of out-of-pocket costs," demands the GKV Vice-Chairman. One possibility would be to more strongly link out-of-pocket costs to retirement income: stronger shoulders would then bear more. Without further development of the model, there is also a risk that long-term care insurance will have to shoulder the rising contributions if care recipients are relieved. Without increasing federal subsidies, the long-term care insurance contribution would have to rise sharply in the coming years. Then the so-called social guarantee of the outgoing federal government—that social security contributions should not exceed 40% of gross income—would no longer be sustainable.

Root Causes: Demographic Change and Policy Responses

The rising long-term care costs result partly from an aging population: at an advanced age, the risk of needing external help increases. Furthermore, the previous grand coalition passed an expensive legislative package last year: it aims to hire more care workers and pay them better, as thousands of positions remain unfilled nationwide, and many nurses leave their profession due to high stress. Improvements in outpatient care are also planned.

International Context: Germany's Pflegeversicherung vs. US Systems

For an international perspective, Germany's mandatory Pflegeversicherung is a social insurance model designed to provide a basic level of long-term care coverage. It can be compared to the need-based, means-tested coverage provided by Medicaid in the United States for eligible individuals, though the funding mechanisms differ. The looming financial crisis in Germany underscores a universal challenge: funding sustainable long-term care. In the US, this has led to a growing market for private long-term care insurance (LTCI) to cover gaps that Medicare does not fill and to protect assets from the high costs of care. The German debate highlights the critical importance of proactive planning, whether through robust public systems or supplemental private insurance.

This situation presents a critical juncture for policymakers, insurers, and citizens. Understanding the pressures on public systems is essential for making informed decisions about long-term care planning and considering supplemental private health insurance or specific long-term care coverage to ensure financial security in later life.

Insurers and brokers struggle in claims management with high backlogs, increasing claim frequencies, skilled labor shortages, and growing customer expectations. Manual processes are expensive and slow.