The New Finance of Longevity

The Evolution Of Long Term Care

What we might learn from Germany and other countries about managing the care for our aged

A breakthrough study from the National Academy Of Social Insurance, Designing Universal Long-Term Services and Support Programs, considers the decline of stay-at-home caregiving and its implications for a growing population of those who need it. Excerpts from the brief are presented below; Access the full study here.

In 2019, Washington State enacted the first universal long-term services and supports (LTSS) program in the United States. It is a social insurance program, like Social Security or Medicare Hospital Insurance, into which virtually all workers contribute and from which all who meet the vesting requirements will be eligible to benefit. Workers will begin contributing in 2022 and vested workers needing LTSS will be eligible to claim benefits beginning in 2025.

Several other states, including California, Maine, Vermont, Michigan, Illinois, and Minnesota are considering adopting similar programs in the coming years. While universal LTSS programs are new to the United States, a number of other countries have experience with such programs, and most of these countries have been operating them for decades. As state governments in the U.S. embark on the design and implementation of universal LTSS programs, much can be learned from the experience of existing programs in Europe and Asia. For social insurance approaches to LTSS, Germany’s program is the paradigmatic model.

This brief begins with an overview of the range of existing approaches abroad to the provision of universal LTSS, and then considers lessons from an in-depth case study of the German program. Overview of LTSS Programs Abroad For the past few decades, industrialized countries have been coping with the challenges of an aging population and the decline of the stay-at-home caregiver. In response to both the increased demand for formal care and concern over the costs of informal care (in terms of caregivers’ labor market participation, productivity, and health), the public role in long-term care has grown. A growing number of developed countries have either introduced universal public LTSS programs or are exploring options for doing so. As different countries have increased the public role in LTSS, they have tended to adopt an approach in keeping with their broader social policy culture and framework. Programs can be described in terms of four broad types in terms of their approach to financing and coverage: social insurance, universal comprehensive coverage, residual systems, and hybrid approaches. Below these types are described briefly and broadly, with one or more examples of each.

Social Insurance

Social insurance programs provide near universal coverage and are funded in whole or in part by dedicated contributions by workers and/or their employers. By far the two most fully developed LTC social insurance programs in the world are those in the Netherlands and Germany. The Netherlands was the first country to introduce a social insurance program for LTSS, in 1968, and Germany introduced its program in 1995. The Netherlands has long had the most comprehensive LTSS social insurance system in the OECD, at a cost of 3.7 percent of GDP in 2017.

Its generous benefits, reliance on institutional care and lack of cost-control incentives led to concerns about its fiscal sustainability culminating in a restructuring of the system in 2015, in which most home care was transferred to the social health insurance scheme and ancillary home care supports became tax-funded and block granted to municipalities for local administration as part of their broader provision of social supports. Historically, the Dutch LTSS system has provided universal benefits designed to cover most of the cost of care; even after the Designing Universal Long-Term Services and Supports Programs: Lessons from Germany and Other Countries 2015 reform, this remains true with the exception of institutional care. Germany’s program provides a capped benefit designed to cover only a portion of the cost of care, leaving families to cover the remainder, backstopped by social assistance. Germany spent 1.5 percent of GDP on long-term care in 2017. Germany’s system, introduced in 1995 and expanded several times since, has become a model in many respects for others, in part because it provides robust benefits at a modest cost. Japan’s program (adopted in 2000) is based on Germany’s, and South Korea’s system (2008) is influenced by both Germany’s and Japan’s systems.

Universal comprehensive coverage provides for the needs of all people with disabilities as a social right, with only minimal cost-sharing. These are single-payer systems funded from general tax revenues. In the decades after the Second World War, the Nordic countries of Sweden, Denmark, Finland, and later Norway – the pioneers in public LTSS programs – transformed earlier public long-term care policies aimed primarily at poor seniors into long-term care programs built on the same conceptual foundations as their broader social policy regimes: universal coverage, comprehensive benefits (with no or low co-payments), state responsibility replacing family responsibility, and local autonomy in administration. While national governments provide a legislative framework, most of the financing and administration is local. These countries rank near the top of the OECD in public spending on LTSS, with Norway devoting 3.3 percent, Sweden 3.2 percent, Denmark 2.5 percent, and Finland 2.2 percent of GDP to it in 2017.

Some other countries (e.g. Austria since 1993 and the Czech Republic since 2007) have tax-funded universal care allowances, but benefits are far more modest in scope than in the comprehensive approach of the Nordic countries. Residual systems primarily provide a safety net for the poor and those who have become impoverished paying for health care and LTSS. They do not provide benefits universally, as the universal-comprehensive approaches do, or to all who contribute and/or vest, as the social insurance approaches do. Rather, applicants must satisfy not only eligibility criteria based on need but also a means test. England and the United States have such systems (and one U.S. state, Washington, has a social insurance program as well). In England the majority of long-term care (LTC) assistance is means-tested, funded by local councils, and provided by independent sector organizations, although a modest Attendance Allowance (for home care) is universally available. (I refer to England, not the United Kingdom, because Scotland, Wales, and Northern Ireland have somewhat different policies. Wales and Northern Ireland provide more generous benefits than England for home care, and Scotland provides free personal care.) In the United States, the federal-state Medicaid program, described further below, pays for institutional care for individuals with low income and assets; states also have the option of offering home care benefits, and most do so to some extent, typically subject to funding constraints. The United Kingdom as a whole spends 1.4 percent of GDP on LTSS.

A Hybrid Approach

As state governments in the U.S. embark on the design and implementation of universal LTSS programs, much can be learned from the experience of existing programs in Europe and Asia. For social insurance approaches to LTSS, Germany’s program is the paradigmatic model...

France’s long-term care policy is a hybrid between a universal system and an approach based on family responsibility (used in many Southern European countries),11 with a minor social insurance financing component. The anchor program, the Allowance for Personal Autonomy (APA) (introduced in 2002 as a follow-up to measures in the late 1990s) provides cash payments to all those 60 or older who need LTSS, without a means test. However, families are responsible for substantial coinsurance, which increases with income. For instance, the highest earners receive only 10 percent of the maximum benefit for their disability level (in essence paying 90 percent coinsurance). The APA is paid for primarily 6 Designing Universal Long-Term Services and Supports Programs: Lessons from Germany and Other Countries out of general revenues, but to address funding challenges, in 2005 a small social insurance financing component, the National Solidarity Fund for Autonomy, was added. Companies pay into this fund the wages they would have paid to workers for a day that had previously been a holiday (Pentecost Monday), and additional funding comes from a small tax on pensions.

In designing LTSS systems, each country grappled with a similar set of challenges. Some of the most important ones, and differences in national responses to them, are highlighted below:

Coverage:
All types of LTSS social protection except the means-tested systems of England and the U.S. (Medicaid) provide coverage to all, not just those with limited income and assets. Most countries with universal coverage have some components or parallel sub-systems that are means-tested. For instance, social insurance programs typically do not cover room and board in LTC facilities, and a means-tested program can help low-income people pay for this. Japan and South Korea do not start full coverage until age 65, except for aging-related disabilities like dementia, which are covered at younger ages as well.

Most countries have separate or complementary programs for younger people with disabilities. Typically, these disability programs came first, and dedicated long-term care programs were added more recently in response to the challenges of an aging society.

Transition Cohorts:
All existing LTSS programs (except Washington State’s) have covered those who were already disabled or retired when the program was introduced. Even the contributory social insurance programs have covered everyone meeting the disability criteria immediately or quickly; the Dutch system has no vesting requirement, while the German system has a two-year vesting period. Covering transition cohorts was done in part because of the political infeasibility of failing to do so. In some social insurance systems, the contribution rate is set higher than would be necessary to cover only working age program contributors in order to subsidize the coverage of disabled and retired people who were not able to contribute during their working lives. In Designing Universal Long-Term Services and Supports Programs: Lessons from Germany and Other Countries Germany, retirees must contribute to the system; they pay the full social insurance contribution rate (the sum of the contribution rate which workers and their employers pay for working-age adults).

Start & Duration of Coverage
While there is debate in the United States around whether new LTSS social insurance programs should provide front-end coverage (for one or two years, or up to a lifetime maximum amount) or back-end catastrophic coverage, all existing models abroad provide coverage of unlimited duration.

Financing
Social insurance programs are funded in whole or in part through contributions by plan participants (workers and/or their employers and in some cases retirees as well), while universal comprehensive and residual systems are paid for predominately out of general revenues. Social insurance programs are funded – and also tend to be administered – on a national level to achieve maximum risk-pooling, whereas tax-funded systems usually have a strong local component in both funding and administration. Social insurance financing is largely insulated from politics – i.e., contributions cannot be taken out of the fund and used for other purposes, while tax-financed systems are highly subject to changes in annual budgetary priorities of those in elected office…

Case Study: Lessons from the German Experience

Germany’s LTSS social insurance program (die Soziale Pflegeversicherung) is the paradigmatic social-insurance approach internationally, with a quarter-century of experience from which policymakers can learn. Several other countries, including Japan and South Korea, have largely modeled their programs on Germany’s. What makes Germany’s system particularly attractive for U.S. policymakers is that it has achieved near universal coverage with a robust benefit package and a self-funded, fiscally conservative approach.

Part of the political compromise that led to enactment of the German program was keeping its fiscal footprint modest, and the program has largely delivered on this promise. Germany spends slightly less than the average of its peer nations on long-term care – 1.5 percent of GDP, compared to 1.7 percent on average for the 17 OECD countries reporting long-term care expenditures – despite having a mature public program. Germany’s LTSS insurance program was designed to achieve multiple goals: to dramatically increase the supply of public LTSS benefits to help meet the demands of the age wave; relieve the growing burden on communal social assistance programs; relieve the burdens – financial and otherwise – experienced by individuals needing LTSS; ensure that the overwhelming majority of people needing LTSS need not rely on means-tested supports; and support and reward the care work performed by families, among others. It succeeds on all of these fronts, to varying degrees, and enjoys strong public support across the political spectrum. It also faces new challenges.

To delve deeper into the German experience, I conducted semi-structured interviews with senior officials and stakeholders in the German long-term care and care leave systems in addition to conducting a review of legislative documents, administrative reports, and program data. Below I summarize key lessons from the German experience with regard to the LTSS social insurance program’s coverage and financing, benefit structure, and family-centered program design. I then broaden the long-term care policy lens to encompass recent efforts in Germany to leverage care leave to meet LTSS policy challenges and conclude with a discussion of LTSS workforce challenges.

Access the full report here.