Introduction of Universal Long-Term Care Insurance in Germany
Introduction
Hackmann et al. (2025) compute the MVPF of a policy reform that introduced universal long-term care (LTC) insurance in Germany. Under the universal insurance system, eligible patients select to receive one of three benefits: cash (typically used to finance informal care), subsidies for formal outpatient care, or subsidies for formal inpatient care. Benefits are determined by assessors, and patients pay the difference between the insurance subsidy they receive and the market price of care out of pocket.
The universal system replaced an existing means-tested program that provided eligible low-income individuals with full coverage for formal LTC services. The shift to a universal structure was intended both to increase access to LTC insurance and to grow the LTC sector.
Using administrative employment records and data on pre-reform coverage rates, the paper implements a difference-in-differences design that compares areas with lower pre-reform public assistance coverage (higher exposure to the new universal program) to areas with higher pre-reform coverage (lower exposure). The paper finds that, even using conservative estimates (the lower bounds of their 95% confidence intervals), the introduction of universal LTC insurance increased demand for LTC, leading to growth in the sector that ultimately increased the total labor earnings gain in the economy (i.e., the total wage bill) by 6% and reduced unemployment rates by 2 percentage points, with effects concentrated among previously unemployed individuals and individuals outside of the labor force.
Pays for Itself
Net Cost
The net costs to the government include both mechanical transfer costs and behavioral responses.
The government spent €8.41 billion per year on long-term care subsidies in 1999, the first year of full reporting under the new universal insurance system, with €1.17 billion per year spent on inpatient care for patients already receiving LTC, €2.18 billion per year on new recipients who selected cash payments, €2.00 billion per year on new recipients who selected formal outpatient care, and €3.05 billion per year on new recipients who selected formal inpatient care.
The introduction of universal LTC insurance increased the total wage bill in the economy by at least 6 percent, or by 0.06 x €684.8 = €42.4 billion per year. The paper assumes that 60% of the wage gains will return to the government through taxes and social insurance contributions paid by workers and firms (Bundeszentrale für Politische Bildung 2023), implying an increase in tax revenue of €25.55 billion per year.
The policy also reduced unemployment insurance payments to workers who entered the labor market. The paper estimates that the introduction of universal LTC insurance reduced the number of unemployed workers by at least 514,009. With an average annual unemployment insurance benefit of €9,300, the policy change generated a reduction of €4.74 billion per year in unemployment insurance payments.
Combining, the total cost is therefore €8.41 – €25.55 – €4.74 = -€21.88 billion per year.
Willingness to Pay
The paper considers two groups of beneficiaries when computing the willingness to pay for the introduction of universal LTC insurance: patients and workers.
The policy generated benefits for patients already receiving LTC under the previous policy scheme and patients who now receive LTC due to the policy change. Patients already receiving LTC under the existing policy value the policy change dollar for dollar, as absent the policy change, they would have paid for inpatient care out of pocket. Given an average subsidy value of €14,305 per patient per year, the 81,935 patients already receiving care value the policy change at €1.17 billion per year.
Patients who receive LTC due to the policy change can select to receive cash, formal outpatient care, or formal inpatient care. The 528,797 patients who now receive cash value the €4,126 per year payment dollar for dollar, resulting in a total willingness to pay of €2.18 billion per year. Given the substantial nature of the policy change, the paper assumes that those who now receive formal outpatient and inpatient care value the care at 50% of the subsidy value. The 213,705 patients who now receive on average €9,391 worth of outpatient care per year have a total willingness to pay of €1.00 billion per year, while the 213,036 who now receive on average €14,305 worth of inpatient care per year have a total willingness to pay of €1.52 billion per year.
The introduction of universal LTC insurance increased the total wage bill in the economy by at least 6 percent, or by 0.06 x €684.8 = €42.4 billion per year. To calculate workers’ willingness to pay for wage gains, the paper first calculates a post-tax increase in wages of €25.86 billion per year, assuming workers face a 39% combined income tax and individual social insurance contribution rate (Bundeszentrale für Politische Bildung 2023). Next, given that most wage gains went to previously unemployed individuals, the paper accounts for the fact that workers do not value the entire increase in wages, as they only enter the labor market once the wages offered pass a certain threshold. Following Mui and Schoefer (2024), the paper assumes workers value 10% of the post-tax wage gains, as the remaining 90% of gains were required for workers to enter the labor market. This results in a willingness to pay of €25.86 x 0.10 = €2.57 billion per year.
Patients have a total willingness to pay of €1.17 + €2.18 + €1.00 + €1.52 = €5.88 billion per year. Adding in workers’ willingness to pay for wages increases the total willingness to pay to €5.88 + €2.57 = €8.45 billion per year.
MVPF Summary
The paper estimates a willingness-to-pay of €8.45 billion per year and a net government cost of -€21.88 billion per year, which leads to an infinite MVPF.
The paper also reports two alternative MVPFs that ignore various spillover effects of the policy. Including estimates only related to patients and workers in the nursing home sector (e.g., excluding overall changes to unemployment insurance) generates an MVPF of 1.06, while further ignoring effects on LTC workers and focusing only on patients generates an MVPF of 0.64.
References
Bundeszentrale für Politische Bildung. 2023. “Steuer- und Abgabenlast von Durchschnittsverdienern.” https://www.bpb.de/kurz-knapp/zahlen-und-fakten/soziale-situation-in-deutschland/61896/steuer-und-abgabenlast-von-durchschnittsverdienern/.
Hackmann, Martin B., Jörg Heining, Roman Klimke, Maria Polyakova, and Holger Seibert (2025). “Health Insurance as Economic Stimulus? Evidence from Long-Term Care Jobs.” NBER Working Paper 33429. https://www.nber.org/papers/w33429. Also available at https://drive.google.com/file/d/1LKi4NSMvSOBGCb9QB0DjWYNnRmnY5uf7/view
Mui, Preston, and Benjamin Schoefer (2024). “Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin.” Review of Economic Studies, 92(1): 442-475. DOI: https://doi.org/10.1093/restud/rdae021
Policy Features
- Category
- Social Insurance
- Sub-Category
- Retirement
- Beneficiary Type(s)
- Adults, Seniors (65+)
- Average Age
- 38
- Country of Implementation
- Germany
- Year of Implementation
- 1999
- Empirical Method
- Difference in Differences
- Research Type
- Secondary
- Peer Reviewed
- No
- MVPF Publication Link
- drive.google.com/file/d/1LKi4NSMvSOBGCb9QB0DjWYNnRmnY5uf7/view