Financial crisis looms without reform
Germany's coalition government reached agreement Wednesday on comprehensive reforms to the country's long-term care insurance programme, securing a significant political victory for Chancellor Friedrich Merz despite recent electoral setbacks and internal tensions with his coalition partners.
The cabinet approved without amendments a draft proposal from Health Minister Carsten Linnemann, who took office in late July, according to the government press office. The reform package addresses mounting financial pressures in a system that has seen the number of people requiring care triple to six million over the past two decades, with approximately 20 million people now covered by the mandatory insurance scheme.
The agreement comes at a critical moment for the coalition between Merz's conservative CDU/CSU bloc and the centre-left Social Democrats, formed in spring 2025 after the CDU won a snap federal election. Merz, who secured the chancellorship in May 2025 after an unexpectedly difficult second-round parliamentary vote, has faced mounting political challenges including disastrous results in recent regional elections.
Government spokesman Stefan Kornelius warned that without intervention, the long-term care insurance deficit would exceed 15 billion euros by 2028. The financial strain reflects both demographic pressures and policy changes, including a 2017 relaxation of criteria for recognizing care needs that contributed significantly to the surge in people receiving benefits.
People aged 67 and older already represent one-fifth of Germany's population, a proportion expected to reach one quarter by 2035. Official projections indicate that by 2038, the number of elderly will increase to between 20.5 and 21.3 million, representing an additional 3.8 to 4.5 million people compared to 2024 levels.
Linnemann, a former CDU General Secretary and Deputy Party Leader who worked closely with Merz in party leadership roles before his ministerial appointment, emphasized that the system faces massive financial pressure. He denied characterizations of the reforms as an austerity plan, noting that contribution rates would remain stable for most workers at the current levels of 3.4 percent of gross wages for those with children and 4.0 percent for childless individuals aged 23 and over. However, childless individuals and high-earners will face increased contributions under the new framework.
Political tensions surface over benefit reductions
The path to agreement proved contentious, with some SPD politicians publicly criticizing the proposal in recent days for relying heavily on cost-cutting measures and benefit reductions. The open disputes between coalition partners had fueled renewed speculation about the government's stability and Merz's political future, particularly given his record-low approval ratings.
The reforms have drawn particular scrutiny given that long-term care services already represent the largest share of out-of-pocket healthcare spending in Germany at approximately 38 percent, placing substantial financial burdens on families even with insurance coverage in place.
Germany's compulsory long-term care insurance system, established in 1995 to address financial risks associated with the aging population, has evolved into a fundamental pillar of the country's social security architecture over three decades of operation.
Linnemann announced that the legislation would establish an expert commission tasked with presenting recommendations on structural reforms to ensure the long-term sustainability of the care sector. Leading German economic research institutes have recently urged the government not to delay action on the promised reforms, underscoring the urgency of addressing the programme's financial trajectory.
