Rising numbers of frail elderly and simultaneously shrinking numbers of informal carers pose a challenge to future viability of the mandatory and non-means-tested long-term care insurance in Germany (LTCI). In particular, the retreat of informal care and teh corresponding rising demand for formal home care (i.e. agency care) or nursing home care increases LTCI spending. With the aim of reforming professional home care to better address care needs, the German legislator therefore passed an amendment to test personal budgets (Pflegebudget) as an alternative to agency care. A personal budgets is a professionally assisted consumer-directed home care program that grants the monetary value of agency services in cash for the purchase of any care-related services, thus expanding the restricted catalogue of services and providers in case of agency care. If personal budgets supplemented existing LTCI home care programs, personal budgets would, however, also compete with the cash option of the LTCI, a consumer-directed home care program that is less generous but somewhat less restrictive than personal budgets. Based on a long-run social experiment, we therefore estimate the heterogenous effect of personal budgets on total care hours as a proxy of the attained care level, and the contribution of formal and informal carers. While we may expect personal budgets to increase formal care and the attained care level among agency care recipients, the corresponding effects for former cash recipients are ambiguous due to a potential substitution of informal by formal care. From the perspective of the LTCI, the feasibility of supplementing its home care programs by personal budgets largely depends on the resulting cost effects though. We therefore bound the likely cost effects in the short run based on a number of scenarios concerning the prospective participation rates of frail elderly in personal budgets among the existing types of home care benefits. We further discuss potentially counteracting forces such as reduced administrative cost and an increasing stability of home care. We examine the latter based on the self-assessed likelihood of moving to a nursing home.The results indicate that for former recipients of agency-directed care, personal budgets allow for extending formal home care measured in hours per week and may thus be a means of improving care outcomes. Moreover, we find a relevant shift of cash recipients to the personal budget for whom a strong substitution of informal care by formal care increases LTCI spending, but does not have any traceable effects on care outcomes. Moreover, the significant increase in the the stability of home care can only attenuate the short-run increase of LTCI spending in case of extending the LTCI scheme by personal budgets. In the long-run, however, the demographic change towards increasing numbers of agency care recipients works to the advantage of the personal budget.

Arntz, Melanie and Stephan L. Thomsen (2008), Reforming Home Care Provision in Germany – Evidence from a Social Experiment, ZEW Discussion Paper No. 08-114, Mannheim. Download


Arntz, Melanie
Thomsen, Stephan L.


consumer directed long-term care, agency care, social experiment, Germany