The aging of society and the expansion of statutory benefits for those in need of care are pushing German social insurance to the limits of its ability to finance itself.

Since the turn of the millennium, expenditure on social long-term care insurance, which was newly introduced in 1995, has more than tripled to 54 billion euros a year.

So far, the main drivers have been political resolutions in favor of higher social benefits and quality of care.

But with the generation of baby boomers, the number of people in need of care will soon increase significantly more than before.

Dietrich Creutzburg

Business correspondent in Berlin.

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A new report by the scientific advisory board at the Federal Ministry of Economics now warns of drastic consequences: "The ability to finance German social security as a whole is at risk." This is how the economists summarize the result of their analysis.

It is available to the FAZ in advance.

For long-term care insurance itself, they expect the contribution rate to rise from a good 3 percent of gross wages at present to around 5 percent by 2040 – provided no further expansion of care services is decided.

An increase in contributions of 2 percentage points would correspond to an additional burden of 34 billion euros annually for employees and employers with today's wages.

Politically, however, the pressure is increasing to expand the protection: So far, the social security fund has paid residents of the home up to 2005 euros a month as a fixed amount - the rest of the actual costs they have to contribute in principle themselves or apply for social assistance.

And this "rest" has grown from 1,772 euros to more than 2,200 euros a month since 2018 alone, as data from the VDEK association of health insurance companies shows.

The new report therefore now recommends introducing an obligation for supplementary private provision so that the care contribution rate does not have to increase further.

With their coalition agreement, however, the traffic light parties have decided to examine how the previous partial comprehensive protection of the social security fund can be expanded to include full coverage;

In any case, they want to finance further cost increases primarily through the contribution fund in order to dampen the personal contributions of those in need of care.

From the point of view of the Advisory Board, this path is fundamentally wrong in terms of economics, but also in terms of distribution policy: This shifts further burdens to younger generations, because they would have to pay for the even higher payments to the growing group of old people.

On top of that, the financing of care costs through social contributions acts as “inheritance insurance” for wealthy seniors: the more the community of solidarity pays, the less they have to touch their own assets when they need care.

Health and pension funds are also under pressure

In addition, social security has other financing problems, the advisory board emphasizes: health insurance and pension contributions are also threatening to rise sharply by 2040, "so that the total contribution to social security would increase to 49 to 53 percent".

That would be 9 to 13 percentage points more than today.

Employees and employers would then have to pay at least 140 billion euros more contributions than before - in addition to increasing tax subsidies to the social security funds.

But such an additional burden violated intergenerational justice not only theoretically, it threatened to fail due to tangible obstacles: "It would also be difficult to enforce politically, because the generation of taxpayers and contributors individually (through emigration, reduction of the labor supply or emigration into undeclared work) or collectively (through political pressure and at the ballot box)," the Advisory Board explains.

In the global competition for highly qualified workers, the current level of taxes is already considered a disadvantage.