The German market for private long-term care insurance: the impact of public subsidies for purchase
Pamela Nadash | University of Massachusetts, Boston
Objective: To explore the impact of the German initiative to offer a public subsidy to for the purchase of private supplemental insurance policies protecting against the cost of long term services and supports (LTSS).
Data and methods: This qualitative study used review of public and industry documents and data as well as key informant interviews.
Results: Germany has one of the largest private long term care insurance (LTCI) markets in the world, with roughly 11 million private policies in force. This presentation discusses its composition and expansion, as well as the role it plays relative to Germany’s mandatory program of LTSS coverage, which requires all to participate. However, some receive their mandatory coverage under the public scheme (which serves 89% of the population), while about 9 million are covered privately, through insurance funds that separately provide private health and LTSS insurance coverage. In addition, a commercial market of about 2.4 million in supplemental policies exists, and has been growing, aided by recent legislation. The provision, the ‘Pflege-Bahr’, provides a modest subsidy for the purchase of certain qualified policies; benefits are modest as well, but overall, the subsidy program allows moderate-income individuals to enhance the benefits received under mandatory coverage, which falls short of meeting the full cost of care. One of the critical design features of the subsidized program is its lack of underwriting; unsubsidized supplemental policies, on the other hand, are able to screen applicants and risk-adjust premiums. Thus, healthy individuals often find that unsubsidized policies offer a better deal, given the small size of the subsidy (a maximum of 5 Euros per month), creating adverse selection for the subsidized policies and providing a significant growth opportunity for the unsubsidized products: indeed, since the program was launched in January 2013, 350,000 subsidized policies have been sold along with 140,000 unsubsidized policies. Over the longer term, this is likely to result in sustainability problems for the subsidized products, raising questions about the rationale for spending public monies on this effort. However, the scheme must be placed in context, as only one component of the reforms that have recently overhauled the German LTCI program.
Policy implications: This effort underlines the lesson, taught by the example of recent attempt in the US to introduce a voluntary public insurance for LTSS, that any LTCI product that does not screen participants or risk-adjust premiums must be mandatory in nature, or risk adverse selection and being unsustainable over the longer term. Significant equity issues also arise out of the use of public monies to bolster private insurance markets.