The Floodgates Are Breaking In Germany's Welfare State

Submitted by Thomas Kolbe

Germany’s social insurance system is coming under increasing pressure from demographic shifts and a stagnating economy. Long-term care insurance is no exception. The political class attempts to sedate the symptoms.

It confirms what demographers and economists have warned about for years: Germany’s social security structure is not built to withstand demographic change or recession. It is a fair-weather construction—a luxury that prosperous societies afford themselves in times of surplus, only to pare it down in times of crisis. That crisis, anticipated by economists such as Stefan Fetzer and Christian Hagist, has now arrived. In a widely discussed study, they predicted that without fundamental reforms, the German welfare state would reach a tipping point by 2030. By then, the total contribution rate to social security would rise to 44.5% of gross wages—suffocating the private sector in the process.

A String of Alarming Headlines

Germany is on a direct path toward that horror scenario, as confirmed by a recent series of alarming reports regarding the financial health of its social systems. Deficits are everywhere: the public pension system will require at least €123 billion in federal subsidies this year. The recently revealed shortfall in the long-term care fund stands at roughly €1.7 billion. Simultaneously, statutory health insurance faces a gap of €13.8 billion. Importantly, these numbers are based on projections that assume a stable economic environment. Meanwhile, the relentless waves of Germany’s prolonged recession continue to batter the increasingly fragile hull of the welfare state.

In long-term care insurance specifically, developments are accelerating. According to a report from the Federal Audit Office, the deficit will likely double next year to €3.5 billion. By 2029, the shortfall is projected to grow to €12.3 billion. The impression is growing that Germany has drastically overextended itself with its generous welfare model – Europe’s largest migration magnet.

The numbers speak for themselves: expenditures for long-term care insurance have exploded over the past decade—from €24 billion in 2014 to over €40 billion by 2019, and €57 billion in 2023. Last year, spending rose again to €63.2 billion. This spending avalanche is driven by an aging population, rising personnel costs, and an ever-expanding benefit catalog that now reads like a political wish list—our means are assumed to be limitless.

Course Correction Required

Thirty years after the launch of Germany’s public long-term care insurance, the system is financially cornered. Andreas Storm, CEO of the insurance group DAK, warned Monday—following a damning report by the Federal Audit Office—of an existential crisis: “The situation in long-term care is much more dramatic than previously admitted. Not only health insurance, but also care insurance is an emergency patient in need of intensive care.”

These are alarming words, echoed by the Federal Audit Office, which criticizes the federal government for delaying necessary reforms. Emergency loans, it warns, don’t solve the problem—they merely postpone it. Without structural reforms, contribution hikes or benefit cuts are inevitable—and coming soon. Costly add-on benefits must be reexamined, as should the politically motivated limits on co-payments for patients. What’s missing is the political will to bolster the system through personal responsibility and private capital. Reforms bring pain—and pain is the death of polling numbers. Thus unfolds the looming debt drama of the German republic.

Left Pocket, Right Pocket

Reforms will be unavoidable. The number of people needing long-term care currently stands at about 5.2 million—and is expected to surge to 6.8 million by 2050. At the same time, the number of working people expected to fund the system continues to shrink. The demographic scissors are opening wider.

The situation is increasingly dire, and these multibillion-euro holes are carving deep furrows into the financial plans of the finance ministry. Yet it remains doubtful whether Berlin grasps the severity of the problem. The politics of endless generosity are etched deep into the German governing psyche. But in a shrinking, native-born population—amid deliberate deindustrialization and mass low-income immigration—medical care, pensions, and social benefits can no longer be managed solely through the state.

Health Minister Nina Warken is currently trying to patch the funding hole using household funds. “To keep contribution rates stable, we need short-term budget support,” she told public broadcaster ZDF. Otherwise, a contribution hike is expected in January 2026—something she says she “would like to prevent.” This year, the government plans a €500 million interest-free loan, with an additional €1.5 billion slated for 2026.

Left pocket, right pocket—it always ends with the taxpayer footing the bill for political mismanagement.

A New Approach

To be blunt: the welfare machine lives off systemic subsidization. Money can always be found—so long as the middle class remains a reliable payer. And what’s the government’s proposed solution? A federal-state commission. Under the working title “Future Pact for Care,” a new master plan is to be drafted—“without taboos,” says Warken. But will it amount to anything?

“We must ask ourselves what benefits we can still afford,” she says. Even incentives for private provision—or obligations—are being considered. That’s a start. But will her coalition partner, the SPD, immediately slam on the brakes?

Germany’s long-term care insurance is a product of a deeply ingrained illusion of total state responsibility. Expanding the benefit catalog has long been bipartisan campaign strategy—just like the early retirement scheme at 63. All part of the endless list of political giveaways that lulled voters into a false sense of security.

The long-term care crisis demands cuts in core benefits—and marks the moment to build up private provision. The winds are shifting: toward austerity, toward efficiency, toward a rollback of the state. The instinct to grab deeper into taxpayers’ pockets must be broken if citizens are to be empowered to save on their own. Economic sovereignty is built on the principle of a minimal state—a message so dangerous that the Berlin political bubble orbits it like a pin ready to pop the illusion.

And those serious about sustainable funding must speak plainly: without ending illegal migration, any reform is cosmetic. A pay-as-you-go system used by a growing number of people who haven’t contributed will collapse.

For those unable to provide for themselves, a slim, state-guaranteed safety net remains—no full-coverage entitlement, but a basic emergency provision. Help for the needy, not equality for all.

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About the author: Thomas Kolbe is a graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. His publications follow a philosophy that focuses on the individual and their right to self-determination.