Germany goes down the road of compulsory care
Long-term care (LTC) cover was available in Germany as long ago as 1985, by way of private stand-alone policies and riders to annuity plans. But in 1995 the government took the bold and pioneering step of making LTC insurance compulsory via an extension of social health insurance. How is the system shaping up six years on and what developments are in prospect?
Germans have the choice of covering themselves through one of the social insurance funds or opting for a private health insurer. Approximately 72m people are covered by social insurance and over 8m by private insurance. The number of supplementary policies, which improve on the standard benefits, amounts to a mere 550,000. There is a small number of life assurance-based plans and LTC bonds too.
The social insurance scheme is funded on a pay-as-you-go basis. Employees and employers each pay 1.7% of ‘insurable earnings’ up to a ceiling that is raised every year. Private LTC insurance, on the other hand, is actuarially funded on a risk-adjusted basis, with the further distinction that the premium reflects all lives covered, including spouses and children. So there is an incentive for large families, especially those with just one earner, and older people to remain in the social scheme.
The income of the social scheme rose from DM16.44(€8.22)bn in 1995 to DM23.55bn in 1995, mainly owing to a rise in contribution levels to reflect the addition of institutional care. Since 1997 income has stabilised at around DM31bn. Benefits paid climbed from DM8.64bn in 1995 to DM20bn in 1996, and since 1997 have climbed slowly from DM28bn to just over DM30bn in 1999. Owing to rising unemployment 1999 was the first year in which outgo exceeded income (by DM60m, although there was still an accumulated surplus which had hovered around the DM9.5bn mark since 1997.
Social LTC insurance has been a success in its early years, but is a pay-as-you-go system sustainable? For Germany the knock-on effects of population shift are as serious as in any other developed country. The figures are sobering. Currently there are 19m aged over 60; by 2010 there will be 21m, and by 2030 27.2m. Over the same period declining birth rates will shrink the population from 82m to 77m. That means that by 2030 no less than 35% of the German population will be over 60.
The number of claims is forecast to rise by about 10% every five years, and further pressures on financing will come from new benefits, the fall in the number of contributors (it is estimated that these together will result in extra expense of just over DM1bn annually), and a shift to higher benefit levels as a result of a decline in home and informal care. Unless contribution levels are raised the current surplus will be exhausted by 2006.
More stable, lower costs and better benefits are the main planks of the advertising campaigns of some of the private health insurers. The growth of private health insurance has not been spectacular but the market has been expanding steadily over the years and in 2000 was worth just over DM40 bn, of which LTC insurance accounted for approximately DM4bn. LTC benefit payments, though, were in the region of only DM900m, the balance being placed in reserve against the impact of demographic shift. Klaus Mattar, actuary at Swiss Re Life & Health’s Cologne office, says “Claims incidence has proved to be lower than expected, but termination rates have been lower too. For the time being rating bases appear to be sound, but this is relatively new business and very close monitoring will be required.”
Germans are proud of their pioneering social LTC insurance scheme and reassured that the safety net is there. Nevertheless they are concerned that benefit levels are not keeping pace with care price inflation. A spokesman for the PKV, the Association of Private Health Insurers) comments: “Not surprisingly, when compulsory LTC insurance was introduced and demand for care services increased, so did the cost of care. And because claimants must still pay their living and accommodation costs themselves, sometimes it is hard to manage. This is where private insurance with additional benefits and cover can prove its worth.”
Benefit levels have not been the sole source of dissatisfaction. There has been public concern over the quality of care available, and in particular the exposure of shameful treatment of elderly patients in a number of care homes. Along with the introduction of compulsory LTC insurance, these scandals have helped raise the profile of long-term elderly care and its associated issues, in turn creating valuable debate about best practice and standards of quality. As a result the government is in the process of passing a ‘Care quality improvement bill’ based on an element of public control, the clear assignment of responsibility for quality to care providers and partnerships between providers and LTC insurance funds for setting, maintaining and improving standards.
A further reforming act is one aimed at improving the arrangements for dementia patients being cared for at home in an informal setting. It will allow one day or night a week in a care centre, giving respite to the regular carers, without affecting the home care payments.
LTC insurance in Germany has taken on a European dimension since the so-called ‘Molenaar’ case heard in the European Court of Justice in 1998. It involved a Dutchman and his German wife living in France but working in Germany. The court ruled that those working in Germany but living outside are obliged to pay LTC insurance contributions and, in return, are entitled to receive basic home care benefits in cash.
But another recent court decision looks as though it could have an impact not just on LTC insurance but the wider social insurance framework. The constitutional court has ruled that in future those who do not raise families should pay higher social LTC insurance contributions than those who do on the grounds that, in the longer term, they are preventing the entry of new contributors to the scheme, and thus threatening its viability. This change should be implemented in the next four to five years, and precisely what is entailed is a long way off being decided.
But it opens up the question of equity among contributors to social insurance generally, and some commentators believe that an overhaul of the Germany’s social insurance
system is on the cards.