Are We Bill-Dodgers at our Children’s Expense?

Bad Neuenahr-Ahrweiler, 23.10.2006. – This year’s lecture of the Kreissparkasse was given by Professor Dr. Bernd Raffelhüschen from the Institute of Finance and Economics at the Universität Freiburg, on the sustainability of social security on trial. In his trenchant lecture, he reported on the demographic challenges to the German Federal Pension Fund, as well as health and nursing care insurance systems.
The nursing care insurance has never been, and will never be, an “inter-generational contract”; this is due to the “cardinal faults” made when the insurance was introduced: The in-payments are income or pension-related and the contributions based on the number of children. This has, according to Raffelhüschen, nothing to do with Bismarck’s basic idea of social security. The second fault lies in having created an inter-generational contract in the 1980s, without the generation meant to fulfil this contract actually existing.
Raffelhüschen also argues that the health care system is out of kilter, again due to the strong redistribution from the young to the old: the generally healthy young generation has been paying in a lot more that the mostly sickly elderly. Since there are reserves within this health care system based on redistribution, the system will, due to the demographic development of an increase of elderly people, face major income problems. Due to this “demographic effect” an increase of contributions of 20% is to be expected. If the costs of medical and technological advances are added, it will go up to the region of 28%. Raffelhüschen does not see any solution in changing the revenue side, but rather in changing the expenses side. Since it will not be possible to finance all medical needs through this health insurance system, rationing will be inevitable.
Raffelhüschen also demonstrated that, in terms of provisions for old age, the family should not let go of its traditional task of caring for all its members. The family should not get downgraded to a rarity, because the collective funds are in danger of breaking down should the state be expected to bear the sole responsibility. Furthermore, Raffelhüschen still holds on to Blüm’s declaration that pensions are secure. A “basic pension” will be, according to him, significantly less than before, and there will probably not be any increase in pensions until 2009 or after, but the long-term financing of pensions will be secure.

Short Curriculum Vitae
Bernd Raffelhüschen is Professor of Finance and the Director of the Research Center Generationenverträge at the Universität of Freiburg. He studied Economics at the universities of Kiel, Berlin, and Aarhus (Denmark) and completed a Ph.D. at Kiel where he also completed his Habilitation (post-doctoral degree) in Economics. He has undertaken many visits abroad to the USA, Scandinavia and other countries.
His main research interests are social and fiscal policy, old-age provision and dynamic fiscal policy. Apart from his role in international research projects, he participates in the work of political councils, e.g. as a member of the Rürup-Commission and as chairman of the Stiftung Marktwirtschaft.