LTC Bullet--LTCI in Germany
Thursday, August 15, 2002
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LTC BULLET--LTCI IN GERMANY
"LTCI in Germany" by Stephen A. Moses
[The following report draws upon articles by and in-person interviews with several German health and long-term care experts including Dr. Joachim Wilbers, Dr. Clemens Tesch-Roemer, Dr. Hans-Joachim von Kondratowitz, and Professor Bernhard Güntert. The opinions expressed and the conclusions reached in this paper, as well as any errors or omissions, are my responsibility alone and should not be imputed to the interviewees. My thanks to Dr. Joshua Wiener of the Urban Institute for his assistance in identifying and contacting these experts. If you're interested in the very latest developments, watch for this forthcoming article: Kondratowitz, H.-J.v., Tesch-Römer, C. & Motel- Klingebiel, A. (in press), "Establishing Systems of Care in Germany: A Long and Winding Road," Aging Clinical and Experimental Research: Special Issue. As this LTC Bullet sends, floods are devastating much of Central Europe, including Germany. We wish our friends there well.]
Germany launched a mandatory long-term care insurance program (LTCI) in 1995. LTCI is the latest component--after health, unemployment, pension, and accident insurance--in a social security system started by Bismarck in the nineteenth century. In the United States, calls for more government financing of long-term care are commonplace. Hawaii is seriously considering the idea of mandatory, government-managed long-term care insurance (see "LTC Bullet: Hawaii's CarePlus Program," June 28, 2002, http://www.centerltc.com/bullets/archives2002/367.htm ). What can we learn from Germany's experience so far with compulsory long-term care insurance?
Before 1995, Germany--like most European countries and the United States--had a welfare-financed long-term care system. In theory at least, individuals used their own income and assets to pay for care. Immediate family members were supposed to be held financially responsible. When all else failed--as it often and quickly did--the "Social Assistance" or locally-based public welfare system, took over. Welfare paid 70 percent of long-term care costs, including $9 billion for nursing home care and $900 million for "ambulatory care."
In the 1990s, two public policy trends came into conflict in Germany. On the one hand, politicians and economists worried that an aging population was quickly making Germany's pay-as-you-go social insurance programs fiscally unviable. On the other hand, German citizens who were accustomed to "free" health care (actually paid through payroll taxes) were clamoring for free long-term care. The challenge for Germany became how to relieve the burden of long-term care on citizens and the welfare system without further overwhelming a social insurance system already perceived to be driving up unemployment inexorably and inhibiting economic development excessively.
German policy makers came up with a very creative answer and miraculously found the political will and consensus to implement it. Unfortunately, mandatory long-term care insurance in Germany has created as many new problems as it has solved old ones. Here's a brief look at what the Germans did in 1995, what's transpired since, and what we should learn from their experience.
Germany's long-term care system covers everyone. Employees and employers pay 1.7 percent of salary in equal parts into the mandatory insurance system. High income earners may opt for private LTC insurance instead and 85 percent of those eligible, do so. Benefits provided include home care, institutional (nursing home) care, and caregiver benefits. Participants may opt to receive benefits in kind, such as nursing home or home care, or they can receive a smaller cash benefit in lieu of home care to be used as they and their families see fit. The "medical service" (Medizinisher Dienst der Krankenkassen or MDK) determines medical eligibility for benefits at three care levels. Care Level I, with a flat monthly rate of 1023 Euros (E) for institutional care (one Euro equals approximately one Dollar), 384 E for home care in kind, and 205 E for home care in cash, is for people who need over 45 minutes of care per day plus 45 minutes of housekeeping; Level II, paid at 1,279 E, 921 E, and 410 E for the three levels of care respectively, requires over two hours of personal care and one hour housekeeping; and Level III, 1,432 E, 1,432 E and 665 E respectively, requires over four hours of personal care and one hour of housekeeping. By the end of 2000, 1.44 million Germans received home care and 553,000 received institutional care under the new long-term care insurance system.
By all accounts, the new German LTCI system has shown some positive and some negative results:
On the positive side, the new system has encouraged the development of a stronger home and community-based services infrastructure as a growing number of entrepreneurs compete for the new cash and in-kind benefits available to beneficiaries. Long-term care costs paid through Germany's welfare system have declined considerably as more and more expenditures come from the mandatory insurance system. Between two-thirds and three-fourths of persons receiving benefits report satisfaction with the system. Most importantly, Germany's success in implementing a new long-term care financing system offers hope for other countries that experimentation and change are possible despite seemingly insurmountable economic and political obstacles.
On the negative side, after only seven years in operation, Germany's new LTCI system is already in deficit. It collects in taxes less than it spends in benefits. It has consumed the surplus of funds originally created by withholding benefit payments for the first three months when payroll deductions were initially levied. Rumors are rampant that the Federal Ministry of Health will propose an increase in the payroll deduction from 1.7 percent to 2.5 percent soon, with additional increases to as much as 4.0 percent by 2040. Cost containment competition between Germany's health care and LTCI systems is beginning to look to some observers like a "race to the bottom." Despite predictions that half of the LTCI beneficiaries would choose in-kind benefits, fully 80 percent initially chose cash benefits instead, raising a serious question about quality of care and the potential for elder abuse. Because the German LTC insurance system does not cover "hotel" costs, i.e. room and board, and because the system remains heavily dependent on expensive nursing home care, Germany's welfare system still has to pick up a large share of institutional costs for the indigent. Finally, the LTCI benefit is not gauged to inflation. Consequently, unlike Germany's social health insurance system, welfare expenditures for long-term care are expected to increase inexorably and indefinitely as the need to supplement a declining real value of the LTCI benefit increases with inflation.
In the course of interviewing several experts in Germany on the new LTCI system, I discovered an interesting set of circumstances. Relative responsibility is a fundamental principle of civil law in Germany. Parents are responsible for their children. (German children can literally sue their parents in court to compel them to pay for a university education.) Similarly, children in Germany are responsible for their parents. Adult children of parents in nursing homes are supposed to contribute toward the cost of their parents' care. Both the parents' and the adult children's income and assets are subject to examination to determine welfare eligibility and the appropriate level of contribution toward the cost of care. Such contributions by adult children are estimated to average 100 to 200 Euros per month.
Germany's relative responsibility requirements may have little effect on public LTC expenditures, however, for several reasons. They only apply to direct relatives, e.g., natural children, not in-laws. Contributions are never required to exceed "reasonable" levels and, in fact, contribution requirements are not established in law or regulation. Only general "guidelines" are recommended by the national welfare association. Little effort is made to enforce relative responsibility requirements. On the other hand, while their effect remains unmeasured, Germany's relative responsibility regulations probably do encourage families to delay institutionalization of their infirm elderly to some extent. They may also inhibit use of the welfare system to subsidize nursing home care as some families voluntarily contribute to avoid the intrusion and embarrassment of being compelled to do so by the government.
As in the United States, people in Germany frequently shift or hide income and assets to qualify for welfare supplementation of their nursing home costs, according to the experts I interviewed. Unlike the U.S., Germany has a 10-year look-back or "recapture" law under which recipients of transferred assets can be compelled to return them. No research has been done and hence no empirical data is available on how widespread artificial impoverishment to qualify for welfare-based long-term care benefits is in Germany. To raise such questions is considered "politically incorrect," there as here.
Another interesting fact about the welfare system that supplements public LTC insurance in Germany is that eligibility requirements are far more severe than in the United States. People are allowed to keep 2,000 Euros for funeral expenses and a home of only moderate value. In the U.S., Medicaid nursing home eligibility rules permit recipients to keep $2,000 cash for any purpose, a pre-paid burial trust of unlimited value, a home and all contiguous property of unlimited value, a business including the capital and cash flow of unlimited value, one automobile of unlimited value, and many other exempt assets, not to mention more sophisticated sheltering devices such as trusts, annuities, life-care contracts and self-canceling installment notes. Although, technically speaking, welfare eligibility rules are stricter in Germany than in the United States, there seems to be no evidence that the rules are enforced any more consistently or effectively there than here.
LTC Comment: So, what's the bottom line? In Germany, as throughout Europe (and in the U.S. as regards Social Security and Medicare), experts are extremely worried about the impact of aging demographics on their pay-as-you-go social insurance programs. Everyone understands that long-term care for the baby-boom generation could become the "straw that breaks the camel's back." Germany decided to do something about the LTC challenge and deserves tremendous credit for making the effort. Unfortunately, evidence so far does not suggest that Germany's mandatory long-term care insurance system will relieve the economic pressure expected from LTC in the future, much less solve the long-range problem. We would observe, for reasons covered in detail in a speech titled "Insurance: Private vs. Social" http://www.centerltc.com/speakers/insurance.htm , that all efforts to socialize LTC risk tend to decrease the sense of urgency individuals and families feel about the need to plan for long-term care. Government financed long-term care lulls them into a false sense of security on the one hand, but never provides adequately for the kind of care they prefer on the other hand. To the extent individuals and families save, invest and insure privately so they can purchase the kind and quality of care they really want, the long-term care service delivery marketplace is empowered and government is enabled to use its ever-scarce resources more effectively to serve the needy. Germany's experiment in mandatory long-term care insurance deserves more time to prove its effectiveness. In the meantime, smart people there and here will make every effort to prepare to pay privately for long-term care when the real demographic crunch arrives in fifteen years or so.
[Editors interested in publishing "LTCI in Germany" should contact the author directly at email@example.com or 206-283-7036.]