Care insurance is financially under significant pressure. This is not only due to the ageing population and the corresponding growing care needs for an increasing number of people. Legislative reforms in recent years have also expanded both the pool of benefit recipients and the scope of benefits. At the same time, personnel costs and the utilisation of care services are increasing.

The Care Reorganisation Act recently initiated by the federal cabinet is the government’s response to this development, aiming to stabilise care insurance in the short term. However, it accepts further rising ancillary employment costs in the process. The real challenge remains: how can long-term care financing be achieved without further impairing Germany’s competitiveness as a business location?

Care is also an economic issue

Care policy is not merely a social policy issue. It has long since become an economic policy factor. Increasing care contributions raise labour costs, dampen work incentives, and reduce companies’ leeway for investments and employment. At the same time, the care economy itself is a crucial economic and employment factor. With the growing need for care, the demands on an efficient, innovative, and productive care economy are also increasing.

Furthermore, the organisation of care influences the workforce participation of many employees. Those who care for relatives often work less or stop working temporarily. Given the shortage of skilled workers and labour, the question of how care can be organised and financed is becoming increasingly important. Good care policy can contribute to better reconciliation of care and work, securing labour force potential.

Employment costs continue to rise

The current care reform (only available in German) includes crucial impulses for digitalisation, innovation, and reducing bureaucracy. The planned investments in digital infrastructure, new care models, and more efficient processes address key demands from businesses. Especially in light of the shortage of skilled workers, productivity advancements in care will be essential in the future and can help better exploit the potential in this sector.

At the same time, the draft law foresees further increases in contribution burdens – from the companies’ perspective, the central weakness of the reform. Although the cabinet decision does not raise the contribution assessment ceiling for care insurance to the annual income threshold of statutory health insurance as initially planned, the extraordinary increase of the monthly contribution ceiling by 300 euros and the new care insurance contributions for mini-jobs remain part of the draft law, directly increasing employment costs. Additionally, significant contribution increases for the childless add further burdens on earned income, weakening work incentives. According to government figures, this results in an immediate additional burden of more than five billion euros annually for contributors and businesses starting in 2028.

The temporary stabilisation of care insurance thus primarily occurs through higher contribution burdens at the expense of labour. The reform does not provide a lasting solution to the financial problems of care insurance. With the planned introduction of an annual dynamic adjustment of benefit amounts from 2029 onwards, care insurance expenditure will also systematically continue to rise in the future. This further increases the relevance of a sustainable financing solution.

Reforming the care system instead of imposing additional burdens

The announced Care Structure Commission should develop proposals that do not rely on additional wage-related revenues and aim to reduce care contribution rates in the medium term. The debate has so far focused heavily on further benefit expansions and additional revenues. However, it is not effective to only explore new funding sources or redistribute existing burdens differently, such as by shifting them between private and social care insurance, as is currently being discussed. This overlooks the actual challenge. The key question is: how can expenditures be limited, existing funds used more efficiently, and care financing decoupled from labour costs?

In this context, it is regrettable that the specific incentives for private and company care provision included in the draft bill were not adopted in the cabinet version. A stronger focus on private provision could help place the financing of care on a broader and more sustainable basis in the long term.

Future reforms should also address structural improvements: greater emphasis on prevention can help avoid or delay the need for care. Digitalisation and innovation can unlock productivity potential and ease the burden on care workers. Reducing bureaucracy creates more freedom for actual care services.

Sustainably stabilising care finances

Germany needs a care insurance system that remains effective in the long term while considering economic conditions. From businesses’ perspective, the following applies: stabilising care finances must not lead to ever-higher labour costs. Rising social security contributions are already among the largest burdens on Germany as a business location. Any further increase in employment costs reduces the scope for investment, dampens work incentives, and harms competitiveness. Hence, reforms are necessary that enhance efficiency, strengthen prevention, foster private provision, and fund broader societal tasks more strongly from tax revenues.