Funding of long-term care: Arguments against extending compulsory insurance

To this end, the commission is examining, among other things, whether extending compulsory insurance by a funded scheme could help protect private households from steadily rising co-payments for inpatient care. However, this approach cannot contribute to stabilising contribution rate in the mandatory pay-as-you-go long-term care insurance. This is because it aims to cover cost risks that were not previously insured. Nevertheless, extended compulsory insurance could be justified, for example, by protecting against free-riding behaviour. This is because higher-income and wealthier households could be tempted to forego making their own provisions and instead use their funds for other purposes, relying on tax-financed care assistance.

However, this assumption is contradicted by the fact that German households have the highest level of assets at the time of retirement. Together with their retirement income, around five out of ten pensioner households would therefore be able to finance for up to five years the costs of inpatient care for one person from their own resources. Considering that owner-occupied property can also be mortgaged for this purpose, the figure would even be seven out of ten pensioner households. However, tax-funded care assistance is only paid out once applicants have used up their own income and assets. The means test therefore already acts as a kind of excess, protecting against free-riding behaviour.

Instead, wealthy pensioner households would benefit from extended compulsory insurance. This is because their income and assets would remain unaffected in the event of long-term care. The remaining assets would instead pass to their potential heirs. It is also questionable whether this would make the welfare state more efficient. It would certainly ease the burden on tax-financed assistance, as additionally insured benefits reduce the likelihood of having to rely on tax-financed assistance in the event of long-term care. At the same time, however, income transfer would be necessary to ensure that low-income households – regardless of age – are not unduly burdened by the additional premium required. Not only would this be costly, but income equalisation would also be less accurate due to the waiver of means testing.

Under no circumstances, however, should consideration be given to financing co-payments, which have been borne privately up to now, through pay-as-you-go long-term care insurance. This would lead to an even greater increase in expenditure and contribution rates. To achieve the goal of contribution rate stability, the commission should focus its attention instead on establishing a funded insurance solution within the social care insurance system to help finance the partial benefit promise. This would not only slow down the impending increase in contribution rates but also limit the increasing burden on younger contributors.