Fairness in Germany's Long-Term Care Insurance: The Relationship Between Social Insurance and Private Mandatory Insurance

The long-term care insurance act of 1994 introduced two branches of long-term care insurance (LTCI), namely the social LTCI and a mandatory private LTCI. Both branches together cover almost the whole population. Insurees of the social LTCI, however, have a higher age-specific dependency ratio. Furthermore, social LTCI covers a higher share of elderly people. Therefore, per capita expenses are twice as high as in private LTCI - even if benefits for civil servants directly financed out of the public purse are taken into consideration. Moreover, on average members of private LTCI have higher incomes. If organised according to the principles of social LTCI, private LTCI could therefore operate with a contribution rate that is only one third of the rate necessary in social LTCI. Being assigned to social LTC thus creates a considerable disadvantage for the insurees that cannot be justified. Fairness considerations therefore demand reform. The most simple, but politically most difficult, reform option is to abolish the dualism of social and private LTCI and create an integrated system for the whole population instead. If this is not possible at least a risk equalisation scheme should be introduced that equalises the risk structure concerning the expenses and - if possible - also the income side.