the role of public finance and private supplementary funds” LONG TERM CARE POLICY SOLUTIONS FOR AN AGEING SOCIETY AND ITS FINANCIAL SUSTAINABILITY IN THE GERMAN EXPERIENCE Markus Sailer Component Two- 2018 Training Course “Financing the social security system in an ageing society: the role of public finance and private supplementary funds” Italy, July 1st -15th, 2018

Index: MANAGEMENT AND ORGANISATION: DECENTRALISATION AND INTEGRATION Principles of design and organisation Number of insured

Index: TYPE OF ELDERLY SERVICES: FORMAL AND INFORMAL CARE Definition: …»in need for care» Dimensions of assessment Care grades List of benefits Size of benefit according to care grade Benefits for all grades Number of beneficiaries

Index: FINANCING AND SPENDING LEVELS Financial parameters: rate of contributions Contribution payment Financial parameters: Revenues and expenditure Mechanism of revenue sharing Medium term financial stability Long term financial stability Financial parameters: projection of expenditure Long term care provident fund

MANAGEMENT AND ORGANIZATION: DECENTRALIZATION AND INTEGRATION

PRINCIPLES OF DESIGN AND ORGANISATION Germany: History of social security and social protection through branches of social insurance Statutory health insurance (1883), statutory industrial injury insurance (1884), statutory pension insurance (1889), statutory unemployment insurance (1927) Coverage gap: insurance of the long term care risk If in need of care: out-of-pocket payment or means tested social assistance 1995: statutory social long term care insurance (LTCI)

PRINCIPLES OF DESIGN AND ORGANISATION Mandatory social insurance Statutory benefits, partially comprehensive insurance LTCI Management entrusted to Statutory Health Funds, but separate branch and distinct accounts; LTC insurance follows health insurance Private insurance for those not entitled to statutory health insurance or opting out Opting out possible, if monthly (annual) wage is above Euro 4,950 (59,000) Supplementary insurance for individual benefits: private insurance, tax subsidized

PRINCIPLES OF DESIGN AND ORGANISATION Delivery of services Care givers (family members or acquaintances): home care Contracted facilities under municipal, non-profit or private ownership Out-patient care services In-patient care services, nursing homes

NUMBER OF INSURED (2017, in million) SOCIAL LTC PRIVATE LTC Contributing members 56.0 n.a. Family members 16.3 Total 71.4 9.4

TYPE OF ELDERLY SERVICES: FORMAL AND INFORMAL CARE

DEFINITION … IN NEED FOR CARE Impairments of independence or incapacitation due to physical, mental and psychological disabilities … in six fields, which are weighted (next slide) The need must be long-term, at least for six months and of a defined gravity

DIMENSIONS OF ASSESSMENT Mobility (10%) Cognitive and communicative abilities (15%, jointly with (3)) Behaviour patterns and psychological problems (15%, jointly with (2) Level of self sufficiency (40%) Health restrictions, demands and stress due to therapies (20%) Structure of every day life and social contacts (15%)

CARE GRADES The weighted results are added to a total of 0 to 100 points.. The scale is divided into five segments which define the five grades of “need for care”. TYPE OF BENEFIT CARE GRADE 1 CARE GRADE 2 CARE GRADE 3 CARE GRADE 4 CARE GRADE 5 Points 12.5-27 27-47.5 47.5-70 70-90 90-100 Definition Minor impairment of independence Considerable impairment of independence Severe impairment of independence Most severe impairment of independence Most severe impairment of independence with special care requirements Source: Social Code Book no 11

LIST OF BENEFITS Cash transfer Benefits in kind Substitute for prevented caregiver Day-/Night care Supplementary ambulatory care and relief benefits Short term care Social insurance of caregivers (non-professional) Auxiliary devices / improvements to the living environment In-patient care In-patient care in home for handicapped In-patient care top-ups Counselling services in LTC matters Other benefits: Training courses, …

SIZE OF BENEFITS ACCORDING TO CARE GRADE TYPE OF BENEFIT CARE GRADE 1 CARE GRADE 2 CARE GRADE 3 CARE GRADE 4 CARE GRADE 5 Euro per month Care allowance 125 Outpatient care: benefits in cash 316 545 728 901 Outpatient care: benefits in kind - 689 1,298 1,612 1,995 Inpatient care: benefits in kind 770 1,262 1,775 2,005 Day- / Night care Euro per year Short term care and substitute for prevented care giver Source: Federal Ministry of Health

BENEFITS, for all care grades Auxiliary devices: 40 Euro per month Improvements to the living environment: 4,000 euro per case Top up for resident group: 214 Euro per month Counselling services in LTC matters; 23 Euro per semester: grade 1-3, per quarter: grade 4 and 5

NUMBER OF BENEFICIARIES (2017, in thousend, rounded figures) CARE GRADE OUT-PATIENT CARE IN-PATIENT CARE TOTAL 1 163.0 4.1 167.2 2 1,269.2 186.8 1,1456.0 3 695.2 240.9 936.5 4 285.4 224.2 509.5 5 109.0 123.9 232.7 2,522.0 779.9 3,302.0 Source: Federal Ministry of Health (BMG)

FINANCING AND SPENDING LEVELS

FINANCIAL PARAMETERS: RATE OF CONTRIBUTIONS TIME PERIOD RATE OF CONTRIBUTION in percent Start End 1995, January 1996, June 1.0 1996, July 2008, June 1.7 2008, July 2012, December 1.95 2013, January 2014, December 2.05 2015 January (present) 2.55 Since 2005 the rate of contribution for childless insured is increased by 0.25%.

CONTRIBUTION PAYMENT Contributions levied on gross wages up to the contributory threshold, Euro 4,425.00 per month in 2018 Employees: Contributions are equally shared between employees and employers Pensioners pay entire contribution

FINANCIAL PARAMETERS: REVENUES AND EXPENDITURE YEAR CONTRIBUTIONS TOTAL REVENUES EXPENDITURE ON BENEFITS TOTAL EXPENDITURES BALANCE In billion Euro 2014 25.8 25.9 24.2 25.5 0.4 2015 30.6 30.7 26.6 29,0 1.7 2016 32.0 28.3 31.0 1.0 All figures rounded. Source: Federal Statistical Office, Statistical Yearbook 2017

MECHANISM OF REVENUE SHARING Dotations from contributions made by pensioners. Excess funds of LTC funds Other contributions Preliminary, ex ante revenue and expenditure sharing based on estimated balances Ex post annual revenue and expenditure sharing based on final balances Principle of expenditure appropriation: Fund’s share on scheme’s revenues Management by Federal Insurance Supervisory Office

MEDIUM TERM FINANCIAL STABILITY Model projections Current rate of contributions sufficient until 2022 Additional revenues from increased contribution rate: Euro 2.5bn p.a. Further increase in revenues to Euro 2.7bn by 2020

LONG TERM FINANCIAL STABILITY Model projections Macroeconomic model Scenario T+: positive development regarding demography, employment, productivity, gross domestic product Scenario T-: negative development regarding demography, employment, productivity, gross domestic product

FINANCIAL PARAMETERS: PROJECTION OF EXPENDITURE Projections - price indexed ___ wage indexed In percent of GDP Scenario T+

LONG TERM CARE PROVIDENT FUND Established and operational In 2015 Purpose Smoothing of expected increase in contribution rates Accumulation phase 2015 to 2033 Annual dotation 0.1% of previous year’s (standardised) revenues Dotation of 2017 Euro 1.36bn Assets, end of 2017 Euro 3.83bn Decumulation phase Starting in 2035 Maximum annual drawing not in excess of 1/20 of the assets as of end of 2034 Management German Central Bank (Deutsche Bundesbank) Monitoring German Federal Ministry of Health

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