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Intergenerational equalization of burdens

Country: 
Deutschland
Partner Institute: 
Technische Universität Berlin
Survey no: 
(2)2003
Author(s): 
Susanne Weinbrenner, Reinhard Busse
Health Policy Issues: 
Pflege, Finanzierung
Current Process Stages
Idee Pilotprojekt Strategiepapier Gesetzgebung Umsetzung Evaluation Veränderung/Richtungswechsel
Implemented in this survey? ja nein ja nein nein nein nein
Featured in half-yearly report: Health Policy Developments Issue 2

Abstract

Financial sustainability of LTCI shall be achieved by: Building of a capital stock. The Rürup Commission by demanding pensioners to pay a larger contribution rate until 2030. The Herzog Commission by broadening the income basis, increasing contribution rates and demanding employees to renounce another public holiday or holiday. Additionally both commissions demand quality measures and adjustment of benefits to inflation.

Purpose of health policy or idea

In November 2002 after the German Social Democratic Party (SPD) and the Green Party won the parliamentary elections, the Minister of Health, Ulla Schmidt (SPD), appointed a commission in order to develop proposals in terms of financial sustainability for the German social security system. The commission was set up, as immediately after the elections a huge financial gap in the pension fund was discovered. Especially the Green Party and also parts of the SPD insisted on exploring the issue with a long-term perspective accompanying short term measures.

Bert Rürup (SPD), a professor for national economy, especially public finance, and member of the Advisory Council for National Economic Development, directed the consultations. The other members were coming from the scientific community, the industry, the unions, statutory and private health insurance companies, consulting agencies, representatives of the States (Länder) and the German cities and towns.

Under the scope of financial sustainability for social security systems, reforming of the Statutory Long-term Care Insurance was one of the main issues the commission dealt with. The so called Rürup Commission submitted its final report at the end of August 2003.

The opposition in parliament the German Christian Democratic Party (CDU/CSU) also appointed a commission, the so called "Social Security Commission", with the same task under the direction of Roman Herzog (CDU), former German President. Members of this commission were also coming from the scientific community, industry, health insurance companies and representatives from states, towns and cities. The calculations were assisted by a famous consulting company. The Herzog Commission also provided a report, published at the end of September 2003.

The Rürup Commission provided a reform proposal based on different measures:

  1. Maintaining the LTCI as a social insurance which is funded by employers and employees and which provides capped benefits.
  2. Reforming the funding base of the LTCI with emphasis on inter generational burden-sharing. This shall be realised from 2010 until 2030 by two measures:
  • A compensatory contribution to be paid from pensioners amounting to 2% of their income, which is expected to allow the general contribution rate to decrease to 1.2%. This means an overall contribution-rate for pensioners about 2.6% (2% plus one half of general contribution rate).
  • The population aged under 65 has to save mandatorily for long-term care amounting 0.5% of their income, so that for this part of the population the contribution-rate will stay at 1.7%.
  1. From 2030 the contribution rate for the whole population is expected to stay at 1.7%.
  2. Automatic adjustment of benefits to inflation and nursing labour costs (from 2005).
  3. Equal reimbursements of ambulatory and inpatient care from 2005.
  4. Pilot projects with personal budgets from 2005.
  5. Extension of benefits for people with mental illnesses, dementia and psychic disorders from 2005.

Similar to the reform proposal concerning SHI there was a minority group vote against this suggestion. The reform idea provided by the Herzog Commission is also consisting of different steps:

  1. Maintaining the LTCI as a social insurance which is funded by employers and employees and which provides capped benefits.
  2. Change the pay-as-you-go system to a capital-based system. During a transitional phase (until 2030) saving of a collective capital stock shall be achieved by an increase of the contribution rate to 3.2%. To relieve the share of non-wage labour costs, employees shall renounce another public holiday or holiday, which is estimated to be worth 0.5%. By this means the contribution rate for employers will be de facto only 1.1% whereas for employees it will account for 1.6%.
  3. Reforming the funding basis in terms of including all types of income, when calculating the contribution rate.
  4. Reducing the difference in reimbursement between ambulatory and inpatient care to support ambulatory care.
  5. Fostering prevention and rehabilitation for geriatric patients.

Adjustment of LTCI benefits to inflation and nursing labour costs.

Main points

Main objectives

Sustainable Financing of LTCI

Type of incentives

Financial

Groups affected

The whole population, Rürup: increased burden on pensioners, Herzog: increased burden on employees

 Suchhilfe

Characteristics of this policy

Innovationsgrad traditionell neutral innovativ
Kontroversität unumstritten kontrovers kontrovers
Strukturelle Wirkung marginal recht fundamental fundamental
Medienpräsenz sehr gering neutral sehr hoch
Übertragbarkeit sehr systemabhängig sehr systemabhängig systemneutral

Rürup

  • It is a rather innovative approach, as never before a proposal committed one population group to take on an extra financial burden. So it is very likely that the visibility in public will increase after the SHI reform has become effective in January 2004 and the discussion will than become quite controversial. At the moment LTCI is not very high on the agenda but it will rise as soon as the legislation process will start.
  • The impact on the financial status quo will be quite high if the measures are successful in terms of sustainable financing.
  • The proposal is quite context-dependent as it is built on the existing  LTCI scheme.

 

Herzog

  • Broadening the revenue basis of LTCI by taking other incomes but paid employment into account, is a quite innovative approach in Germany. The policy process is quite controversial but is expected to increase onward as soon as the discussion on sustainable SHI financing is "finished". At that time media presence is also likely to increase.
  • The impact may be quite fundamental with regards to stabilizing the financial situation of the LTCI.
  • As the proposal rests upon the current LTCI scheme it is quite context dependent.

Political and economic background

The overall economic situation is characterised by a rising pressure on the German national budget, the national economy and thereby on the social security systems. Against the background of excessive national debts and the requirements of the Maastricht criteria, Germany has to work on the national budget deficit.

The height of work related costs is regarded as an obstacle to competitive capacity and more employment. These factors are estimated as condition precedent to recovery of the national economy. As contribution rates to the social security system are connected with employment and wage, the overall economic situation has a strong impact on the social insurance system as well as on demand and consumption.

The LTCI was introduced in 1995 as the last pillar of the German social security system. In previous years being in need for long-term care often meant being in need for social assistance. The LTCI relieved pressure from municipalities which were responsible for providing social assistance. From 1995 until 1999 the LTCI balance was positive or at least equal. Since 2000 the expenditure is exceeding the revenue which is expected to become really difficult in the future, as the shortfalls are expected to increase. Against the background of an increasingly ageing society with approximately 1.9 million nursing cases in 2003 and an estimated 3.1 million nursing cases in 2030, while a decreasing share of the population is working and thereby contributing to the funding of the LTCI the financial situation is becoming more and more critical.

Another reason for the amendment of Social Code Book XI is a judgement of the Federal Constitutional Court (BvR 2014/95) from April 3rd 2001, which demands the consideration of bringing up children. Citizens bringing up children shall be relieved during the child-raising period e.g. by means of reduced contribution rates. The amendment of Social Code Book XI has to be passed until 31st of December 2004.

After all it became more and more evident that mentally ill persons (e.g. patients with Alzheimer's Disease) are not covered sufficiently by LTCI. Consumer associations called for amendments since the commencement of Social Code Book XI.

Furthermore in recent years the gap between actual costs and reimbursement of care increased as the reimbursement was not adjusted to inflation. Care providers were applying for higher reimbursement rates to cover expenses. Under this scope and due to the fact that care infrastructure had to be established quality problems and gaps in supply became more and more evident.

Complies with

EU regulations

Maastricht.Criteria

Other

Judgement of the Federal Constitutional Court (BvR 2014/95)

Change based on an overall national health policy statement

Sustainability for social security systems

Purpose and process analysis

Current Process Stages

Idee Pilotprojekt Strategiepapier Gesetzgebung Umsetzung Evaluation Veränderung/Richtungswechsel
Implemented in this survey? ja nein ja nein nein nein nein

Origins of health policy idea

  • Both ideas were generated under the scope of expert commissions being appointed in order to suggest reform options with respect to a long lasting effective financing of the social security system.
  • Some of the suggested ideas were previously demanded by consumer associations and nursing care providers.
  • Consideration of child-raising is demanded by the Federal Constitutional Court (BvR 2014/95) from April 3rd 2001.

Approach of idea

The approach of the idea is described as:
amended: Amendment of the Social Code book XI, which came into force in 1995

Stakeholder positions

  • Both commissions submitted reports on their reform proposals.
  • Changes concerning the adjustment of care benefits and improved consideration of the mentally ill were already demanded by providers and consumer associations.
  • Judgement of the Federal Constitutional Court (see above).

Influences in policy making and legislation

There is a demand of legislation concerning the LTCI due to a Federal Constitutional Court judgement from April 2001.

Legislative outcome

n/a

Adoption and implementation

Rürup: Concerning funding, the most affected group will be the pensioners, thereafter employers and employees. At the moment it is difficult to anticipate the reaction of pensioners and pensioners associations. It is very likely that they will oppose to the proposal. It will therefore depend to what extend they are willing to account to the solidarity principle and realize that they will also benefit from this solution.

Concerning supply people with dementia and other kinds of mental diseases will gain more benefits. Care givers will earn more, but will also be bound to quality management. For both groups (people who are in need of care and care givers) there are financial incentives. Nevertheless people being afflicted with dementia still do not have an official accepted status of being in need of care as compared to people with physical ailments. Care givers may still argue that the remuneration is too little.

Herzog: Concerning funding the most affected group will be employees and unions, thereafter people not living on paid employment but on other sources of income and employers. Representatives of the unions are opposing the proposal. People living on income different from dependent employment may also oppose, but this might be not visible as they will probably try to hide income from the fiscal authorities.

Concerning supply the measures do not defer substantially as far as they are worked out by now.

  • The Minster of Health established a round table, to work out proposals on more quality and safety in long-term care. All stakeholders are invited to participate. This committee may possibly moderate the negotiation process.

Monitoring and evaluation

Small scale examples are planned for a new form of budgeting à non-transferable personal budgets. These examples have to be evaluated to decide whether this type of budgeting will become a constant part of the Social Code Book XI.

At this stage there is no information on a review mechanism for the amendment of the Social Code Book XI at large.

Expected outcome

As both proposals are based on some model calculations it is difficult to asses the overall outcome of the funding reform. Furthermore it is difficult to foresee the changes to occur in the course of the negotiation process.

If the estimated calculations are sound, the funding gap which is expected to occur during the next decades, could be closed. This may improve the economical situation as people may consume more, if they are not afraid of the future anymore.

The Minister of Health announced that with some amendments the main proposals from the Rürup Commission will be taken into account at the amelioration bill to be discussed in parliament.

  • One part of the proposals deals with mandatory quality improvement measures so the impact in this area is supposed to be high.
  • As this way of funding is supposed to provide financial sustainability the intergenerational equity will rise as the following generation will still be able to benefit from LTCI.
  • Cost-efficiency may increase by means of improved quality of services.

References

Sources of Information

http://www.bmgs.bund.de/

http://www.soziale-sicherungssysteme.de/

http://www.bundesregierung.de/Themen-A-Z/Agenda-2010-,9757.517777/ artikel/Vorschlaege-der-Ruerup-Kommiss.htm   

http://www.die-gesundheitsreform.de/index.4ml

http://www.arbeitnehmerkammer.de/sozialpolitik/seiten/1_politik_sozialkommission.htm

http://www.bverfg.de

Author/s and/or contributors to this survey

Susanne Weinbrenner, Reinhard Busse

Empfohlene Zitierweise für diesen Online-Artikel:

Susanne Weinbrenner, Reinhard Busse. "Intergenerational equalization of burdens". Health Policy Monitor, November 2003. Available at http://www.hpm.org/survey/ger/a2/1