When care makes you rich: How financial investors exploit our social system – How private equity funds rake in profits at the expense of senior citizens

Up to €3,245 in additional payments: The secret pursuit of returns in German nursing homes

Exploding care costs: The real reason that hardly anyone knows

Long-term care in Germany is increasingly becoming a life-threatening financial burden. Those who have to care for a relative in a nursing home today pay, on average, well over €3,000 per month out of their own pockets – and this figure is rising sharply. The aging population and the long-overdue higher wages for nursing staff are often blamed for this. But that's only half the story. A closer look behind the scenes reveals a worrying trend: the systemic funding gaps in long-term care insurance are increasingly attracting international financial investors. Through complex real estate and debt structures, private equity firms are squeezing high returns out of an underfunded social system. Those who suffer are the people needing care, their families, and ultimately, the quality of care itself. The following analysis shows why the long-term care market has spiraled out of control and why even the elimination of subsidies wouldn't solve the problem.

The care market out of control: When care becomes a business model

Few social systems in Germany have seen such a dramatic increase in costs over the past ten years as long-term care. Today, those placing a relative in a nursing home pay an average of €3,245 per month out of pocket in the first year alone – €261, or nine percent, more than just a year earlier. Within ten years, total long-term care expenditure in Germany has more than doubled, rising from around €65 billion to nearly €136 billion. At first glance, these figures appear to be an inevitable consequence of an aging society. However, a closer look reveals that this cost explosion is the result of a complex interplay of political decisions, economic structural factors, and an increasingly profit-driven market environment in which private investors are deliberately exploiting the weaknesses of a regulated but underfunded system.

Why prices are rising faster than wages

The immediate trigger for the recent surge in costs is clearly identifiable from a legal perspective. Since September 2022, nursing homes have been legally obligated to pay their staff according to collective bargaining agreements, or at least at the level of those agreements. This reform, known as the Fair Wages Act, was explicitly intended from a social policy standpoint because, for years, nursing staff had been paid significantly less than hospital employees. The wage gap between a professional nurse in a hospital and one in a nursing home shrank from 25 percent to just four percent between 2012 and 2024, which is structurally welcome, but at the same time has massively increased the largest cost component for nursing homes: personnel costs. Added to this are general inflation in energy, food, and material costs, as well as increased construction and maintenance costs for nursing home properties, which are also largely passed on to the residents.

The real systemic weakness, however, lies in the design of long-term care insurance itself. Unlike health insurance, it only covers a capped fixed amount of the actual costs incurred, which, moreover, does not automatically increase with inflation or tariff increases, but is only raised when the legislature enacts a reform. The last adjustment to benefit amounts was in January 2025 with an increase of 4.5 percent; no further increase was decided for 2026, and the next one is not planned until 2028 at the earliest. While the real costs of long-term care facilities are thus continuously rising, the insurance fund's share remains nominally unchanged for years. The difference between these two amounts, the so-called uniform facility-specific co-payment, therefore grows systematically faster than general inflation and must be borne entirely by those requiring care or by social assistance.

How much Germany really spends on care

The statutory long-term care insurance system itself is simultaneously coming under financial pressure. Last year alone, six million people received benefits from long-term care insurance – twice as many as ten years prior – and total expenditures exceeded €70 billion for the first time. According to the German Institute for Economic Research (DIW), this is not primarily due to demographic effects, the full impact of which will only become apparent in the 2050s, but rather to political decisions. In particular, the introduction of a new, broader definition of care dependency in 2017 significantly expanded the circle of those eligible and facilitated access to benefits, leading to a dynamic increase in the number of beneficiaries. While this expansion was justified on professional and social policy grounds, it explains why a large part of the current financing crisis is self-inflicted and not solely attributable to the aging of society.

Only about one in five people requiring care actually receives inpatient care in a nursing home; nevertheless, this sector, as the most expensive form of care, already consumes around 20 billion euros of health insurance funds' expenditures. To curb the upward trend in spending, the federal government even considered delaying the payment of subsidies for new nursing home residents until after a longer waiting period instead of immediately – a proposal that would at least temporarily increase out-of-pocket expenses. Forecasts from the Scientific Institute of the AOK (a major German health insurance provider) show that even the increased subsidies introduced in 2024 and the dynamic adjustment of benefit rates implemented in 2025 will not halt the upward trend. If current trends continue at a moderate pace, the average total burden on nursing home residents is expected to rise to over 1,600 euros per month by 2030 for out-of-pocket care costs alone – excluding accommodation, meals, and investment costs.

Who is really behind the nursing homes

At this point, the initial question becomes relevant: who actually benefits from this development? The German long-term care landscape is structurally characterized by three types of providers: non-profit organizations such as Diakonie, Caritas, and Arbeiterwohlfahrt, which, with around 53 percent of facilities, still constitute the largest group in the inpatient sector; private, for-profit providers, whose share has now grown to 42 percent; and public providers, which, with less than five percent, hardly play a role anymore. The share of private, profit-oriented operators has risen steadily since 2005, from around 35 percent in 1999 to 42 percent in 2015, reaching its current level, while the share of public providers has fallen from 8.5 percent to under five percent during the same period. At the same time, the market is increasingly concentrating on a few large providers: While in 2013 there were an average of 1.5 homes per company, by 2030 there should be around 2.6 homes per company, while the number of smaller, independent providers is continuously shrinking.

Particularly revealing is the growing influence of international financial investors. In 2022, around 30 percent of nursing home places operated by the 30 largest German nursing home providers were in facilities owned or run by private equity firms – a share that more than doubled between 2010 and 2020. Of the 30 largest operators, 19 are now privately owned and only 11 are non-profit. The most prominent example is the 2017 acquisition of the nursing home operator Alloheim by the private equity firms Carlyle and Nordic Capital for $1.2 billion, more than twelve times its annual profit at the time.

The business model behind the acquisitions

The answer to the question of whether opportunity truly creates profit opportunities here, rather than mere economic activity, is nuanced, but ultimately clear. Nursing homes are considered an attractive asset class for institutional investors because demographic change guarantees a structurally growing demand, and because a large portion of the revenue is indirectly secured by the state through tax revenue and social security contributions. The average net return on sales for a well-occupied home is around three percent, assuming an occupancy rate of approximately 95 percent, which makes the operational business, in itself, a rather moderately profitable venture. However, private equity funds promise their investors significantly higher returns, sometimes up to 25 percent per year, and achieve these not primarily through day-to-day operations, but through targeted financial structures.

A key mechanism is the so-called sale-and-leaseback process: The investor buys a facility including the property, then sells the building on and leases it back long-term. The proceeds from the sale of the property flow to the investors, while the resulting, often inflated, rental costs are passed on to the operating care company as investment costs and subsequently passed on to the residents via their co-payments. A second lever is the debt financing of the acquisition itself: When Nordic Capital bought Alloheim, the debt incurred amounted to more than ten times the company's profit at the time and was subsequently transferred to the care chain, which pays interest of around nine percent to its parent company. Economically speaking, the care company ultimately pays the purchase price for its own acquisition, financed through care contributions, co-payments, and social assistance.

Profit-seeking at the expense of service quality

This financial architecture creates a structural conflict of objectives between business optimization and the quality of care. Social scientists like Stefan Sell from the University of Koblenz point out that a company acquired with debt financing must first generate sufficient profits to refinance its own purchase price, which significantly increases the economic pressure on operations. In Great Britain, where relevant data is much more readily available, an estimated ten percent of the revenue from care facilities flows directly to private equity investors – money that is consequently no longer available for staff, equipment, or the quality of care. US studies have also documented higher mortality rates in privately owned nursing homes, although reliable data for Germany is still lacking. Nevertheless, reports of increased workload and declining quality of care following acquisitions by financial investors are increasing. Furthermore, a portion of the profits generated ends up in tax havens via international corporate structures, thus evading domestic taxation, even though the underlying revenues originate predominantly from German social security contributions and private co-payments.

However, not all providers operate according to this pattern, and a blanket suspicion against private operators would be unfair. Nearly a quarter of German nursing homes were already operating at a loss in 2017, as documented in the RWI Leibniz Institute's Nursing Home Rating Report, demonstrating that high returns are by no means guaranteed across the industry. Even the publicly traded Korian Group recently distributed only around one percent of its revenue as dividends, corresponding to a share price return of three to four percent – ​​a figure far removed from the double-digit promises of some private equity funds. The real pursuit of returns, therefore, focuses less on the operational nursing care itself and more on the real estate and financing structures built around it.

Why non-profit organizations are often more expensive

Interestingly, regional comparative data contradicts the widespread assumption that private providers are generally more expensive. In several German states, care-related costs in non-profit facilities are indeed significantly higher than those of private operators. In Baden-Württemberg, for example, non-profit providers charge an average of €1,215 for care-related services compared to €739 for private providers; in Saarland, the difference is €1,187 versus €827. This finding can be explained, among other things, by the fact that welfare associations often pay according to church or collective bargaining standards, tend to maintain higher staffing ratios, and are less subject to pure competitive pressure in their pricing because they have a loyal client base and sometimes additional institutional funding. The reality is therefore more complex than a simple comparison of non-profit equals cheap and private equals expensive, even if the return-on-investment mechanisms of international financial investors represent a qualitatively different problem than the pricing of traditional welfare organizations.

The subsidy trap in the care system

The initial parallel to subsidies and grants captures the economic core of the problem remarkably accurately. Wherever government or social security payments artificially secure demand without creating effective price competition on the supply side, prices tend to be based on the level of available subsidies rather than actual production costs. In the care sector, this effect is even more pronounced because the demand for care places is structurally inelastic: People in need of care and their families can hardly avoid rising prices; they cannot simply opt for a cheaper provider on the other side of town or forgo a care place altogether, as would be possible with other consumer goods. This combination of guaranteed demand, limited competitive pressure, and regulatory fixed reimbursements creates precisely the environment in which providers can pass on price increases without fearing significant drops in demand.

The crucial difference to traditional subsidized markets, however, lies in the fact that in long-term care, subsidies don't disappear but continue to grow structurally, albeit with a time lag compared to actual cost increases. Thus, there is no return to a pure market price, as the question suggests, but rather a significant lag in public reimbursement, while private contributions fill the gap in the meantime. It is precisely within this gap that the described mechanism of financial investors establishes itself: they calculate their return expectations not based on a hypothetical competitive price, but on the politically guaranteed minimum funding through long-term care insurance and social assistance, supplemented by the knowledge that private contributions can be increased almost indefinitely due to inelastic demand, as long as they remain below the pain threshold of the population's and municipal social welfare providers' ability to pay.

Regional differences as a stress test

The unequal distribution of this burden across Germany is evident when looking at the federal states. While the out-of-pocket cost for the first year in a care home in Bremen reaches €3,456, and Hamburg, at €2,942, is also among the most expensive regions, it is significantly lower in Saxony-Anhalt at €2,443. These differences result from widely varying regional wage levels, land and construction costs, and differing provider structures, such as the particularly high proportion of private operators in Lower Saxony and Schleswig-Holstein compared to the predominantly non-profit structure in Baden-Württemberg, Bavaria, and North Rhine-Westphalia. For family members, this means that the choice of federal state or even region can result in several hundred euros more per month in additional costs, regardless of individual care needs.

Between market failure and political responsibility

Overall, it is clear that the explosion in long-term care costs is not a single phenomenon with a single cause, but rather the result of three overlapping dynamics. First, a politically driven, overdue wage increase for care workers, which has structurally and permanently increased operating costs. Second, a regulatory design flaw in long-term care insurance, which combines capped benefit amounts, adjusted only periodically, with uncapped, rising real costs and systematically shifts the difference onto private households and social assistance. Third, the increasing market penetration by international financial investors, who deliberately exploit precisely this structural gap and the guaranteed, inelastic demand to generate returns through real estate and debt structures that far exceed what the actual operation of long-term care facilities yields.

For economic policy assessment, this means that pure market liberalization, as suggested by the initial thesis of a decline in services when subsidies are eliminated, would hardly work in this specific sector. Long-term care is not a market with free consumer choice and functioning price competition, but rather a basic need shaped by demographic constraints, in which providers with market power can effectively set prices without risking significant losses in demand. Effective countermeasures would therefore have to focus less on the level of subsidies themselves and more on the transparency of cost structures, particularly internal corporate rent and interest payments, as well as on linking long-term care insurance benefits more closely to actual cost developments rather than to political reform cycles. Without such structural reform, the observed dynamic will continue: Real costs and out-of-pocket expenses rise continuously, while a growing portion of the funds financed through social security contributions and private payments flows into the returns of international investors instead of directly into the care of people in need of long-term care.