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With the reform in 2015 of the system of long-term care (LTC) in the Netherlands, responsibilities for the provision of social support and assistance were delegated from the central government to the municipalities. Unintentionally, the way municipalities are financed created incentives to shift cost from the local level back to central level. In this paper we examine whether municipalities respond to the prevailing financial incentives by shifting costs to the public LTC insurance scheme. Using data on almost all Dutch municipalities over the period 2015–2019, we estimate that municipalities with a solvency rate below 20% have a 2.5% higher admission rate to the public LTC scheme. Furthermore, we show that the tightening municipal budgets for social care since 2017 were accompanied with about 14% higher admission rates in 2018 and 2019 compared to 2015. The results point to strategic cost shifting by municipalities that can be counteracted by changing the financial incentives for municipalities and by reducing the existing overlap between the local and central care domains.

AbstractThe Netherlands was the first country that introduced a universal mandatory social health insurance scheme for covering a broad range of long‐term care (LTC) services provided in a variety of care settings. Compared with most other OECD countries, both total and public expenditure on LTC is high, particularly since the Dutch population is relatively young. On the other hand, coverage of LTC services is relatively comprehensive. In this article we examine the past experiences, current deficiencies and future prospects of LTC financing in the Netherlands. By rationing of supply and tight budgetary restrictions, the government managed to effectively control the growth of LTC expenditure, but at the expense of growing waiting lists and deteriorating quality of care. Reform plans aim to make the LTC system more efficient and consumer‐directed. We discuss whether the proposed reforms offer a perspective on a sustainable system of comprehensive LTC insurance. This is especially important in view of the ageing of the population and the expected increase in demand for LTC services. We conclude that the success of the reforms heavily depends on the definition of entitlements, the accuracy of needs assessment and the feasibility of determining appropriate client‐based budgets.