Summary of audit results

The first year and a half of the care reform have shown that the funding model created by the reform makes it difficult to achieve both the efficient use of public money and the objectives of the reform in the long term. The model, which guarantees that the costs of all nursing homes are covered from public funding to a certain extent, carries the risk of uncontrolled increases in public expenditure. There are no measures to mitigate the risk, only market competition is relied on.

From the viewpoint of the state and local budgets, developments so far have been worrying. The increase in the price of nursing home care that has been brought about by the reform has been rapid and strongly under-projected. The operating logic of the model is like a rubber band effect, which must automatically pull the volumes of public funding up after the service price increases, as otherwise the main goal of the reform, which is to make the nursing home service permanently more affordable for people, will slip out of reach.

There is a shortage of nursing home places in some regions, finding a suitable place is difficult and getting one on an average pension is becoming an unrealistic promise. Local authorities received extra money as a result of the reform, but the distribution of this money between local authorities is uneven given the reform’s objectives. The reform has also increased the administrative burden.

Key observations:

• The share paid by service recipients, i.e. their own contribution in the total cost of the nursing home service, decreased from 78% to 61% in the first six months of the reform and has progressed towards the target of the reform, which is 50%. People mostly pay less for nursing home services now than they did before the reform, which is positive.
• The estimate in the explanatory memorandum to the draft of the reform was that the price of the service will go up by ca 3% per year after the reform, the actual price increase has been considerably faster: 75% of nursing homes increased their prices from September 2023 to July 2024 and the average increase was 15%. Getting the forecast wrong and the fact that only 9% of local authorities changed the limits established for covering nursing home costs at the same time are red flags. This points to the risk that people’s own contribution will not decrease in the future, but will start going up again.
• In a sense, increases in prices and costs are inevitable to improve the provision and quality of the service. For example, the number of care workers in nursing homes has increased (15%), their pay has risen (16%) and there are more carers per client than before. At the same time, the profits of larger service providers have also grown strongly. Profits are not a problem in themselves and this is not a criticism of service providers, but the suitability of the current funding model in a free market context, where the service provider is guaranteed cover for costs, but the increase in costs is not well managed from the perspective of the funder, is questionable if the objectives of the reform are to be met.
• On 1 April 2024, there were ca 9,620 people in nursing homes who received old-age pensions. It is estimated that one in three of them were unable to cover their own contribution with their pension and the lower income benefit paid by the local authorities. Calculating the benefit has led to bureaucracy, which makes no sense when the average pension leaves a nursing home place out of reach for many people.
• Affordable nursing home places are hard to find. The price level is higher and the shortage of places more acute in Harju County, where the number of nursing home places per old-age pensioner is five times smaller than in Põlva County. The number of beds increased by ca 5% after the reform, but the number of service recipients has gone up by 9%. Occupancy rates are usually at or close to 100% and waiting times for services are sometimes long. A market with a deficit creates good conditions for continued price growth.
• According to estimates, the limit set by the local authorities covered the cost of care staff for only for 54% of the people in nursing homes on 1 April 2024. The principle that the local authority pays for the cost of the care staff and the service recipient for the rest has therefore not worked well in practice, but has increased the administrative burden for the nursing homes, the local authorities and the Social Insurance Board. Linking the limit and the cost of care staff is intended to support an increase in the quality of the service, but it can also be achieved in other ways (the quality requirements entering into force in 2026).
• The revenue base of the local authorities was increased to cover the costs resulting from the reform, but the spending needs of local authorities are different and the extra money is unevenly distributed between local authorities. This is a risk to achieving the objectives of the care reform. It is even more acute in the case of services that support living at home – they are a strategic priority in long-term care, but the money needed for them has not been taken into account by the revenue equalisation measures (equalisation fund). The goal is that the number of people receiving the home service will grow faster than the number of people receiving nursing home care. There is no sign of this so far.

Recommendations of the National Audit Office

As a result of the audit, the National Audit Office advised the Minister of Social Protection to find solutions to mitigate the risks related to the increase in the price and cost of nursing home services, to reduce bureaucracy in the model of financing nursing home services and to harmonise the financing options of local authorities.