Audit: Nursing home care for average pension increasingly unrealistic

The current nursing home funding model is failing to deliver on the promise of affordable care, the National Audit Office warns. With costs rising and local authorities unable to control prices, securing a spot in a nursing home for the average pension is becoming increasingly unrealistic — raising concerns about the sustainability of Estonia's care reform.
The guiding motive behind the care reform was to make nursing homes accessible for the average pension, and to achieve this goal in a way that people's own contributions to nursing home costs would fall and remain at 50 percent of the total cost of the service, the National Audit Office said in a press release Wednesday.
In the course of the care reform, approximately €100 million in public funding has been injected into the welfare system since it entered into force on July 1, 2023, which initially did lead to smaller nursing home bills. The average own contribution toward a spot in a nursing home fell from 78 percent of the total cost of nursing home services in 2022, the year before the reform, to 61 percent by the end of 2023.
As of April 1, 2024, however, an estimated one in three people were unable to cover their own contribution with either their pension or the benefit paid by local authorities to make up the difference with the average pension.
The increase in the price of spots in nursing homes prompted by the reform has been rapid heavily under-projected, which means that the achievement of the goal — making nursing home care available for the average pension — is unrealistic for state and local authorities' resources.
The Ministry of Social Affairs failed to accurately project the price increase, which the National Audit Office found worrying from a public expenditure management standpoint.
When drawing up the reform, the ministry assumed that after the reform enters into force, the cost of nursing home services would rise by an average of 3 percent a year. However, collected data indicates that between September 2023 and July 2024, 75 percent of service providers increased their prices by an average of 15 percent.
Taking into account that many service providers increased their prices just before the reform entered into force, the inaccuracy of the forecast is amplified even more. In several nursing homes, prices are as much as 35-40 percent higher. When preparing the care reform, it was pointed out to the Ministry of Social Affairs that its forecasts were too optimistic and that the reform itself would lead to more rapid price increases.
The care reform's funding model includes a rubber band effect, where public funding volumes should be automatically pulled along as the price of the service increases — as otherwise the goal of the reform, which is to make nursing home care affordable for the average pension, would slip out of reach.
Service providers are guaranteed coverage of their costs to a certain extent with the support of public funding, but since the increase in costs cannot be managed by the state or local authorities, maintaining such a system may not be feasible in the long run.
Varying shortages
The Ministry of Social Affairs expects price increases to be curbed by market competition, but the financing model does not include any measures to influence this. Given the fact that there is a shortage of availability for nursing home services and that demand exceeds supply, it is likely that rapid price growth will continue.
More spots in nursing homes have been created and availability has thus improved, but the shortage nonetheless remains an issue. Between the beginning of 2023 and May 2024, the maximum number of beds allowed in the country's nursing homes increased by 580, translating into a growth rate of 5 percent.
At the same time, however, the growth in the number of people in nursing homes has outstripped that at 9 percent, indicating strong demand and rising occupancy rates at nursing homes.
The availability of spots varies by region. For example, prices are higher and the shortage is the most acute in Harju County, where the number of spots in nursing homes per old-age pensioner is five times smaller than in Põlva County.
The number of care workers in nursing homes has increased by 15 percent. Although the increase in the number of care workers is one reason for the price increase, the increased ratio of care workers per client is a positive improvement, which has presumably helped improve the quality of service.
Recommendations for the ministry
The National Audit Office advises the Ministry of Social Affairs to look for ways to harmonize options for financing nursing home services in local authorities.
Local authorities received extra money as a result of the care reform, but the distribution of this money between local authorities was uneven given the objectives of the reform. The equalization fund takes into account the expected cost of nursing home services, but does not take into account the cost of home and other services. At the same time, the development of home care is a national social welfare priority, and the ministry expects that the extra money given to local authorities will also be used to provide home care.
The National Audit Office also advises the minister of social protection to review the funding model for care services and make it more resistant to uncontrollable price increases, reduce bureaucracy in the care home services funding model and also seek ways to harmonize the funding of local authorities.
In her response to the audit report, Minister of Social Protection Signe Riisalo (Reform) stated that the Ministry of Social Affairs, together with the parties implementing the care reform, plans to identify the issues requiring urgent intervention in 2025, including addressing the issues highlighted in the National Audit Office audit, adding that the necessary actions for the near future will be planned accordingly.
According to the minister, a more detailed impact assessment of the initial results of the care reform will be completed in the second half of 2026.
Background
Estonia's care reform was a change in the funding principles and requirements for social services related to long-term care, based on amendments to the Social Welfare Act and the Income Tax Act that entered into force on December 23, 2022.
In particular, the reform concerns the 24-hour general care services provided outside the home, i.e. nursing home services, but also services that support living at home.
The updated funding principles entered into force on July 1, 2023, and the requirements for home care and general care will enter into force in 2025 and 2026, respectively.
In 2023, targeted support in the amount of €39.2 million was paid to local authorities to cover the costs of the reform. Since 2024, this money has been transferred to the revenue base of local authorities, and is divided between the income tax calculated on state pension income and the equalization fund. At the time of the audit, the amount of this money planned for 2024 totaled €59.4 million.
It is the direct responsibility of local authorities to finance the staff costs included in nursing home care costs, and a limit may be established for this. The subsidy will "accompany" an individual, regardless of which nursing home they move into.
The recipient of the service pays for the accommodation, meals and similar costs, which is not part of the staff costs, but if an individual does not have the funds to cover their own contribution, local authorities must provide additional assistance to them as needed.
If the service recipient's income is lower than Estonia's average old-age pension, local authorities are required by law to pay lower income compensation. At the same time, local authorities must ensure that the service recipient is able to pay their own contribution after this compensation is assigned, and that the price of the service does not prevent them from receiving it.
According to the register of economic activities, as of April 1, 2024, approximately 230 general care homes were operating in Estonia, with a total of around 10,450 residents, 92 percent of whom were old-age pensioners. 60 percent of service recipients were in private care homes, while 40 percent were in municipal care homes.
Click here (link in Estonian) to read the National Audit Office report in full.
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Editor: Aili Vahtla