The document discusses Germany's long-term care (LTC) system and a newly created LTC precaution fund. Key points: - Germany has a separate social LTC insurance pillar funded by contributions that is managed similarly to but independently from its health care system. - LTC expenditures are expected to double or triple as a percentage of GDP by 2060 due to demographic aging, making reforms necessary. - The new LTC precaution fund will stabilize LTC premiums starting in 2035 by collecting contributions now and investing them to be drawn upon when more funding is needed to cope with the aging population.

1. Dr. Christian Lorenz CPA
Federal Ministry of Health
Germany
Ageing: Fiscal Implications and Policy Responses
Latest reforms and LTC precaution fund
September 2017

2. 2
• LTC completely separated from HC
• Own social insurance pillar with own contributions
• Similarities:
• About 10% private health i. mandatory private LTC insurance
• LTC managed by same insurances
• But: same LTC services for private and social insured!
• Dependance on demografic effects
• LTC much more dependent on demographic effects than HC
• HC expenditure forecasted to increase until 2060 only by 8%
(reference scenario) or 17% (risk scenario) as % of GDP
• LTC exp. double or three times higher than today (AWG ageing
report 2015) for the same scenarios
• Therefore no similar initiative for HC
German LTC system - basics
LTC precaution fund

3. 3
• Social LTC insurance: pay-as-you-go system
• Contribution rate 2.55% of labor income
• Payed half by employees and employers by 1.275% each.
• Pensioners pay 2.55% of gross pension.
• Unemployed or social assistance receive subsidy.
• Insured without children above 23 years pay additional
supplement of 0.25%.
• Annual assessment threshold: 52,200 € (higher income not
included + option to insure privately).
Organisation of government funding
LTC precaution fund

4. 4
• Budget allocation is steered indirectly:
• dependents have freedom of choice for their services
• Fixed amounts paid by the insurance for different types of services
(set by MOH).
• indexation of services by law (inflation orientation).
• Exogenious factor: demografic development
• LTC expenditure are monitored monthly, quarterly and yearly by
MOH based on insurance association statistics (MOL+MOF).
• Adjustment of contribution rate only by law in political process
between MOF and MOH based on financial impact assessment.
• Increase of contribution rate by 0.5% in latest reforms; thereof
0.1% for newly created precaution fund
Budgetary governance
LTC precaution fund

5. 5
Option for social insured
LTC precaution fund
• Social LTC is a part insurance system services capped
• Introduction of voluntary capital covered insurance:
• Subsidy 60 €/year since 2013
• First individualised form of capital covered insurance
• No mandatory capital covered insurance for individuals
especially in low interest rate environment
3 million voluntary
private LTC insurance
contracts

6. 6
• 2015: Additional, collective, capital covered insurance
• Fund is own legal capacity (lawsuits, taxes, regulation)
• Fund managed by National Bank
• Fund works as „demography savings“
• Aim: stabilize premium level from 2035 onwards (limited by
law to only this purpose)
LTC precaution fund - Establishment
LTC precaution fund

7. 7
Baby-boomer
LTC precaution fund
Source: National Statistical Office
Births
Deaths
Population development Germany
Numberpersons
Year
Baby-boomer 1955-1969
Age with higher dependent probability
(above 80 years >10%) 2035-2049
Intergenerational relief

8. 8
• Investments: according to investment rules for federal pension
funds
• Investment committee: MOI, MOF, MOL and MOH, NB, KfW
• Basic rules: security, return and liquidity
• Liquidity: Sell bonds and stocks between 2035-2045
• Investments:
• Bonds (country and state governments, public corporations)
• Stocks max. 20%
LTC precaution fund - investments
LTC precaution fund