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Windfall Profits in the German Long-term Care System: Initial Expectation and Variation Over Time

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  • Stefan Fetzer
  • Fabian Franke
  • Christian Hagist

Abstract

In 1995, Germany introduced a Long-Term Care Insurance (LTCI) scheme. The financing has been set up as pay-as-you-go, and therefore created windfall profits. We calculate an index (IWP) that measures the change in the expected initial windfall resulting from updating financial flows between LTCI and its insureds. Our results show that the level of windfall profits fluctuated for generations living in 1996 and decreased during the period 1996 to 2022. While older generations are less severely impacted, the decrease in IWP mainly concerns younger generations. Demography is not the main driver of these developments, but rather policies regarding benefit levels.

Suggested Citation

  • Stefan Fetzer & Fabian Franke & Christian Hagist, 2025. "Windfall Profits in the German Long-term Care System: Initial Expectation and Variation Over Time," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 81(1), pages 59-84.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2025-0006
    DOI: 10.1628/fa-2025-0006
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    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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