Capping the costs: what are the lessons from the German social care system?

With a possible cap on costs taking centre stage in the debate over England's social care reforms, Laura Schlepper outlines the social care cap currently in place in Germany. What can we learn from the German funding system and the decisions which led to it?

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Published: 12/07/2021

The devastating impact of Covid-19 on the broken English social care system has lent urgency to calls for long-promised reform. While the challenges in the system are great and manifold, an old policy proposal is gaining renewed momentum: the idea of a lifetime cap on care costs.

First proposed by the Dilnot Commission in 2011 and enshrined in legislation in 2014, the intention is to address the issue of individuals facing catastrophic care bills. Under the model, the amount an individual would have to contribute towards their own care would be limited to a lifetime maximum (various proposals ranging from £35,000 - £72,000), with the taxpayer picking up the rest of the bill.

While discussions continue and speculation abounds about the level of the cap and how it will be funded in England, we’ve been keeping an eye on what’s happening in Germany. Since we published our paper on its care system in 2019, Germany has been having its own deliberations over a lifetime cap but has recently opted to pursue a different model.

Here I explain what Germany is doing instead, and what questions this might prompt for the English debate.

The German context: rising costs of care

Germany has a comparatively generous system that seeks to spread much of the cost of care across society, but care is not free at the point of use. All adults pay into a mandatory national long-term care (LTC) social insurance scheme (essentially a strictly ring-fenced tax). On requiring care, people are then able to draw a benefit proportionate to their level of need to cover part of their costs. The remainder of their care bill is covered by the person themselves from their own pocket.

Over time, the costs of care have increased – partly as a result of reforms to improve quality and workforce conditions – but benefits have not kept pace. This has seen more people facing rising bills for their care, particularly in residential care. Concern has been mounting that increasing numbers of people are having to deplete their means to fund care. Once a person has depleted their own resources, local authorities have to step in to provide social assistance.

Although similar concerns are being discussed in England, because part of their care costs are already covered by the LTC insurance scheme, people in Germany do not face costs of the same magnitude. Average care home costs in Germany are now in the region of €1,500 - €2,500 per month, of which around €600 - €1,100 is spent on care (an average increase of 40% since 2018) with the remainder being spent on bed and board and other related non-care costs. For comparison, people in England face average monthly care home costs in the region of £2,816 - £3,552.

What approach has Germany opted for and why?

There has long been general agreement across political parties and various stakeholders in Germany that some kind of limit on costs falling on care homes residents was needed, but the specifics were less clear. After much deliberation, the lifetime cap has been rejected in favour of a monthly cap along a sliding scale.

Under the initial proposal for a lifetime cap, care home residents would pay up to a cap of €700 per month for a maximum of three years, beyond which any care costs would be met by LTC insurance. This would amount to a lifetime cap of just €25,200 – a level considerably more generous to care recipients than that reportedly being considered in England.

Proponents of this option in Germany argued that this would not only contain the costs falling on individuals, but also make costs more predictable. It would, they argued, potentially create a more fertile ground for the private insurance market and/or encourage people to save for future care costs – a policy that has been mooted in England and actively (largely unsuccessfully) pursued in the past in Germany.

However, critics of the lifetime cap argued that it would not sufficiently reduce the burden on all care users equally. Since individual contributions towards care vary across regions and providers, and most people stay in care homes for less than three years, not everyone would benefit from the fixed cap. Others expressed concern that it would be unsustainable in the long term.

As a result of these worries, the lifetime cap was abandoned in favour of a relative cap which caps private contributions towards fees in residential care on a sliding scale relative to length of stay. LTC insurance picks up the rest of the bill (see Table 1). This option, which has now been adopted, guarantees immediate benefits to all care home residents and is felt to better balance fairness and sustainability.

How will the relative cap work?

As illustrated in the table below, the relative cap sees everyone benefitting relative to their costs. In the first year of their stay in a care home, a person pays 95% of the excess care costs; in the second year, they pay 75%; then 55% in year three; and 30% in year four and all subsequent years.

German reform: Cap on care-related private contributions in residential care relative to length of stay for an individual who is currently paying the national average of €831 (in EUR) per month towards their care

Year of stay in a care home

Proportion of excess care costs paid by the care home resident (in %)

Monthly care costs paid by the individual

Monthly private contributions covered by LTC insurance

Year 1

95

789

42

Year 2

75

623

208

Year 3

55

457

374

Year 4 & onwards

30

249

582

In contrast to a fixed cap, people do not cease to contribute privately – this feature appealed to those concerned with longer term sustainability. Predicted to cost an estimated €3 bn per year, additional income will be generated through a 0.1% increase in insurance premiums for childless adults and a newly introduced annual tax subsidy of €1 bn – the latter being a departure from the formerly strictly social insurance-based system.

However, the model is not universally popular and some have questioned whether it sufficiently addresses the issues it was intended to solve. The chart below shows how the two approaches compare. Under the fixed cap, everyone pays up to a fixed ceiling regardless of where they live or their length of stay. Under the relative cap, care home residents still carry a substantial (albeit diminishing) part of costs. Because the model defines the proportion of costs covered by the individual, any increase in overall costs (e.g. from further reforms) will result in care home residents paying more. Thus, this solution does not offer the same level of certainty of the fixed cap and is possibly less easily understood. Other critics point out that the relative cap does not adequately address one of the other problems – that of variable care costs by region and provider.

Monthly private contributions to care costs with a fixed cap compared to a relative cap at different levels of care fees 12/07/2021

Chart

Note:  

These figures illustrate private contributions to care under two different cap models. Model 1 (blue) is based on a fixed monthly cap of 700 EUR for a maximum of three years. Model 2 (purple) is based on a relative cap of monthly contributions, presented for different levels of hypothetical cost. Under this model, care residents pay 95% of care fees in year 1, 75% in year 2, 55% in year 3, and 30% in year four and all subsequent years. See here for further details

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What questions does this raise for England?

The parallels between the German and English debates are striking. The two countries are, on the face of it, grappling with how to balance responsibilities around paying for the cost of care. But it is interesting that it is not only the eventual solution which is different but also the framing of the debate. While it is difficult to judge which type of cap would be best in England without further details on planned reform and careful costing, the differences between the two countries generate some key questions that English policymakers need to explore.

In setting a cap, both countries are performing a juggling act between protection for the individual and cost to the public purse. To balance these effectively, policymakers need to be clear about the problem they are trying to fix. But they also need to be guided by what vision we have for the social care system in the future. And that gets to the heart of some deeply cultural issues around attitudes to care. The political debate in England is mainly focused on the problem of catastrophic costs and the solution offered is that of the lifetime cap. In Germany, issues of sustainability and fairness are at the forefront of the debate. There, the approach taken is one which seeks to benefit everyone proportionally while considering long-term sustainability.

Moreover, German discussions around the cap took place within clear parameters. The focus was on residential costs and proposals have centred on the idea of a monthly cap, which perhaps makes it easier for the public to grasp and plan for than a lifetime cap. Importantly, the debate about the different models took place alongside proposals for revenue raising and upon a foundation of high levels of political cooperation and consensus. In contrast, in England we hear of negotiations between government ministries seemingly divorced from the key questions of how the cap will be funded and what types of ‘care’ will be included.

But perhaps most important of all is the fact that Germany’s cap is being introduced as an additional part of an already extensively reformed system which includes a clear vision for social care and a mechanism to generate revenue. Implemented within a largely functioning (albeit imperfect) system, the cap is intended to address some of the design issues rather than as a solution to all the woes within social care, as it is too often framed in England.  

A cap of sorts may well play an important role within a widely reformed system in England but, alone, will not ‘fix’ social care nor will it bring in any new money. In isolation, it will fail to address the increasingly pressing challenges of unmet need, workforce shortages, undue burden on informal caregivers, fragile providers or any one of a whole raft of other problems within the system. Any reform needs to go further than just offering protection to those unlucky few facing catastrophic costs, however important that is.

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