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

Stefan Fetzer, Fabian Franke and Christian Hagist

FinanzArchiv: Public Finance Analysis, 2025, vol. 81, issue 1, 59-84

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.

Keywords: long-term care insurance; windfall profits; political risk (search for similar items in EconPapers)
JEL-codes: H51 I15 J11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1628/fa-2025-0006

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