Agenda 2035: Ensuring Long-Term Stability of Social Security Contributions
ResearchZEW Scientist Presents Proposals for Reform
ZEW economist Professor Nicolas Ziebarth advocates comprehensive reforms to the health care, long-term care and pension systems in order to cap the increase in social security contributions in the long run. The head of the ZEW Research Unit “Labour Markets and Social Insurance” has developed a catalogue of reform proposals – referred to as “Agenda 2035” – with concrete policy recommendations. The changes proposed are to help ensure that social security contributions permanently do not exceed the threshold of 40 per cent of gross income.
Until now, there has been a broad social consensus that the total amount of social security contributions should not exceed 40 per cent; for example, in 2020, the government run by Christian (CDU/CSU) and Social Democrats (SPD) promised such an upper cap as a “social guarantee.” However, it currently stands at around 43 per cent and is forecast to rise to around 50 per cent by 2035 if no countermeasures are taken. “An increase of this magnitude would have severe consequences for employees and businesses,” warns Ziebarth. “We are in a severe structural crisis. Should contribution rates climb to 50 per cent or more within the next decade, disposable incomes will drop, incentives to work will erode, and rising labour costs would reduce the incentives to hire and invest.”
The Agenda 2035 proposal draws on the current state of research in the areas of health and long-term care, and pension insurance. Ziebarth is calling for structural reforms to ensure a financially sustainable system of social insurances to build trust in its long-term functioning among consumers and investors.
Health care system: Moving towards primary-centred care
A key element must be GP-centred care as already agreed upon in the coalition agreement between CDU/CSU and SPD. Ziebarth proposes modest reforms to establish managed care elements that are standard worldwide but not yet in place in Germany: Under these reforms, there would be no cost-sharing if registered primary care physicians make a referral to specialists, whereas self-referring patients would have to pay a 200 Euro copayment. This should curb unnecessary visits to specialists and strengthen the role of GPs as gatekeepers. “I am not aware of any OECD country that allows free choice of all providers with zero patient cost-sharing,” Ziebarth adds.
In addition, the ZEW economist urges policymakers to require sickness funds to reward those who use cost-effective health care via a bonus-malus scheme, in other words, to implement “value-based cost-sharing”: Preventive services such as flu vaccinations or check-ups should be rewarded with financial incentives; questionable interventions (e.g. the many back surgeries with no clear benefit) should be subject to higher copayments. In addition, higher taxes on tobacco, alcohol and sugar would lower their consumption while generating tax revenues to stabilise contribution rates.
To ensure adequate provision of care in rural regions, Ziebarth proposes measures such as the expansion of digital consultation hours, extended roles of pharmacists and improved allocation mechanisms by the associations of statutory health insurance physicians.
Long-term care: Using available technology, rethinking financing
The long-term care sector has fewer structural inefficiencies than the health care sector. “Long-term care is highly labour-intensive. Wages have been increased substantially to ensure care quality and maintain the profession’s attractiveness,” emphasises Ziebarth. “This has led to cost increases and pressure on contribution rates.” Nevertheless, he says that there is considerable potential in new technologies such as robotics or artificial intelligence, which could increase productivity and relieve the burden on care workers.
Policymakers should therefore create a legal and ethical framework that enables the safe and responsible use of these technologies. Ziebarth is also encouraging a social debate on the financing of care work: Should private resource be used more extensively? Or, alternatively, would it make sense to moderately increase VAT to limit the substantial cost-sharing amounts for nursing home care?
Pension: Flexible retirement age, fair consideration of physically demanding occupations
With regards to Germany’s statutory pension insurance, Ziebarth is in favour of adjusting the standard retirement age to the increasing life expectancy – an approach that is also supported by many other economists. In addition, he proposes the introduction of an “occupational group pension” that would enable people in physically demanding occupations to retire earlier without sacrificing social security. This type of pension could be modelled on the existing basic pension and enable a fair adjustment.
“Germany’s Agenda 2010, passed in 2003, has shown that structural reforms are feasible if all societal groups work together,” Ziebarth reminds us. “We need similar courage for today’s situation – to meet today’s and future challenges.”
