TALLINN, 5 February 2025 – The current funding model for nursing home services needs to be changed, because continuing in the same way is making the promise of ‘a nursing home place for an average pension’ unrealistic, the National Audit Office finds. As local authorities have little control over the price of the service and the increase in costs, it is difficult to achieve the objectives of the care reform whilst avoiding an unreasonable expenditure of public money.

The guiding motive behind the care reform was to make a place in a nursing home available for an average pension. The aim was to achieve this goal in such a way that people’s own contribution to the cost of a nursing home place would fall and remain at 50% of the total cost of the service.

In the course of the care reform that entered into force on 1 July 2023, approximately €100 million of public money has been injected into the welfare system in the first year and a half, which really brought smaller nursing home bills to people at first. Whilst the average own contribution in 2022, the year before the reform, was 78% of total cost of the nursing home service, it dropped to 61% by the end of 2023. However, as at 1 April 2024, an estimated one in three people were unable to cover their own contribution with their pension or the benefit paid by the local authorities to make up the difference to the average pension.

The increase in the price of nursing home places brought about by the reform has been rapid and heavily under-projected, which means that the achievement of the goal – making a nursing home place available for the average pension – is unrealistic for the coffers of the state and local authorities. The Ministry of Social Affairs failed to project the price increase correctly, which is worrying from the viewpoint of public expenditure management. When preparing the reform, the Ministry of Social Affairs assumed that after the reform enters into force, the cost of the nursing home service will rise by 3% a year on average. However, the collected data indicate that 75% of service providers increased their prices from September 2023 to July 2024 by 15% on average. If we also take 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, the price level is as much as 35-40% higher. During the preparation of the care reform, it was pointed out to the Ministry of Social Affairs that its forecasts were too optimistic and that the reform itself will lead to faster price increases.

The funding model of the care reform includes a rubber band effect, where the volumes of public funding should be automatically pulled along as the price of the service increases, as otherwise the goal of the reform, which is to make a nursing home place affordable for the average pension, will 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 the local authorities, maintaining such a system may not be feasible in the long run. The Ministry of Social Affairs expects price increases to be curbed by market competition, but there are no measures in the financing model to influence this. Given that there is a shortage of service places and demand exceeds supply, it is likely that rapid price growth will continue.

More nursing home places have been created and availability has thus improved, but the shortage of places remains a problem. From the beginning of 2023 to May 2024, the maximum number of beds allowed in nursing homes has increased by 580, which translates into a growth rate of 5%. At the same time, the number of people in nursing homes has increased slightly faster, i.e. by 9%, which indicates strong demand and rising occupancy rates of nursing homes. The availability of places varies from region to region. The price level is higher and the shortage of places is the most acute in Harju County, where the number of nursing home places per old-age pensioner is five times smaller than in Põlva County.

Although the increase in the number of care workers is one reason for the price increase, it is positive that the number of care workers per customer is now higher than before, which has presumably helped improve the quality of the service. The number of care workers in nursing homes has increased by 15%.

The National Audit Office advises the Ministry of Social Affairs to look for ways to harmonise the options for financing the service in local authorities. Local authorities received extra money as a result of the care reform, but the distribution of this money between local authorities is uneven given the reform’s objectives. The equalisation fund takes into account the expected cost of the nursing home service, 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 priority for social welfare, and the ministry expects that the extra money given to local authorities will also be used to provide home care.

The National Audit Office advises the Minister of Social Protection to review the funding model for the care service and make it more resistant to uncontrollable price increases, reduce bureaucracy in the model for funding care home services and seek ways to harmonise the funding of local authorities. In her response to the audit report, the Minister of Social Protection stated that the Ministry of Social Affairs, together with the parties implementing the care reform, plans to identify the problem areas requiring urgent intervention in 2025, which includes addressing the problems highlighted in the audit of the National Audit Office. The necessary actions for the near future will be planned on the basis of this. According to the Minister of Social Protection, a more detailed impact assessment of the initial results of the care reform will be completed in the second half of 2026.

Background

The care reform is a change in the funding principles and requirements for social services related to long-term care, based on the amendments to the Social Welfare Act and the Income Tax Act that entered into force on 23 December 2022. In particular, the reform concerns the 24-hour general care services provided outside the home, i.e. the nursing home service, but also services that support living at home. The changed funding principles entered into force on 1 July 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 the local authorities, and it is divided between the income tax calculated on state pension income and the equalisation fund. At the time of the audit, the amount of this money planned for 2024 was €59.4 million.

It is the direct responsibility of local authorities to finance the staff costs in the cost of a place and a limit can be established for this. The subsidy will ‘accompany’ a person, regardless of which care home they go to. The recipient of the service pays for accommodation, meals, etc., which is not part of the staff costs but if they do not have the funds to cover their own contribution, the local authority must provide additional assistance to the person as needed.

If the income of the service recipient is lower than the average old-age pension in Estonia, the local authority is obliged by law to pay lower income compensation. At the same time, the local authority must ensure that the service recipient is able to pay their own contribution after the compensation is assigned and that the price of the service does not prevent them from receiving it.

According to the Register of Economic Activities, there were ca 230 general care homes in Estonia on 1 April 2024. Approximately 10,450 people lived in these homes and 92% of them were old-age pensioners. 60% of service recipients were in private care homes and 40% in municipal care homes

Priit Simson
Communication Manager of the National Audit Office
+372 640 0777
+372 5615 0280
[email protected]
[email protected]
http://www.riigikontroll.ee/

• Posted: 2/5/2025 7:00 AM
• Last Update: 2/5/2025 6:31 AM
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