What's New in...Germany?

Today, as the first in an ongoing series of updates on what's new in international health care, I want to take a look at recent reforms in Germany. As a whole, we Americans pay precious little attention to what’s going on in other countries unless the news involves war or David Beckham. I'm hoping to buck this trend a little.

The big story in German health care is Chancellor Angela Merkel's late 2006 reform that resulted in series of changes that, for the most part, were implemented in April of last year. Below, a look at these reforms; but first a little political background: Merkel heads up a "grand coalition" government, i.e. one where the largest political parties govern in collaboration due to inconclusive election results (a relatively common occurrence in parliamentary systems). In other words, social democrats and conservatives are in a constant tug-of-war. The new plan reflects this fact, juggling solidarity and competition in equal parts. And while this might sound like a good balance, virtually no one is satisfied with the compromise.

On to the big changes:

Mandatory Health Insurance: Many folks think that European health care means, by definition, universal public coverage. Not so. Germany has a public/private system, and before the April 2007 reform, public coverage was only compulsory for those within a certain income range (roughly speaking, working and middle class citizens). Higher-income and self-employed Germans, along with public servants, could opt-out of SHI by purchasing private insurance. They could also forgo insurance all together.

Due to this set-up, until recently some 200,000 Germans were uninsured—about 0.2 percent of the population. As of April '07, all Germans must purchase health insurance. In the past, private insurers (who traditionally offer plans with many bells and whistles) had the right to refuse coverage for high-risk individuals. Now, they must take all comers. In this way, the new German plan is like Hillary Clinton’s proposal for health care reform: insurers can no longer shun the sick but everyone must sign up—citizens cannot wait  until they are sick to enroll.

Private insurers also must now offer basic coverage plans that are comparable—in both benefits and premium cost—to the basic SHI public insurance plan. The idea is that this new cheaper private plans will attract those who opt-out of the public system but don’t want to pay the higher premiums connected to more expensive private plans.

More Competition among Sickness Funds: Sickness funds are the organizations that deliver SHI-based coverage; in essence, they are publicly-funded, non-profit insurance companies. They are financially self-sufficient and funded through premiums that are split 50-50 between employers and employees. Thanks to reforms in the early 2000s that let Germans choose their sickness funds (they used to be assigned a fund based on things like geography, income-level, or profession), the number of funds have steadily declined over the years. Patients have left funds that performed poorly and joined better ones, while some funds have merged. Last year's reform makes it even easier for sickness funds to compete by allowing them to offer a wider array of plans (including plans with lower premiums but higher deductibles) while also opening "closed" sickness funds (e.g. that were originally limited to one profession or one region) to all SHI insurees.

Coordination of Care: Traditionally, Germany has had a pretty fragmented system of care delivery thanks to dual reimbursement systems. Outpatient care is on a fee-for-service schedule, with providers belonging to one of 17 regional SHI provider associations, which in turn contract with the head of sickness funds. Inpatient reimbursement is based on a centralized "diagnosis-related grouping" system.   This system relies on an institutionalized body of knowledge as to the most effective—and cost-effective—way to address certain groups of diseases. It’s informed by clinical, demographic, and economic research and stipulates the best course of action for particular medical situations. Reimbursement is based on how well providers stick to this system.

To help bridge this divide between inpatient and out-patient care, since 2004 Germany has been pushing for "integrated care" contracts. These are negotiated frameworks that include various health care providers, sickness funds, and patients while consolidating the financing, administration, and delivery of care. The 2007 reform adds more funding to get these contracts off the ground and also extends the contracts to non-medical specialists like therapists—the idea being that integrated care should be coordinated to include treatments outside of traditional medicine.

Central Health Fund and Unitary Contribution Rate: At the moment, sickness funds set an individual’s contribution rate--how much of his or her income goes to premiums—based on income (in private insurance, premiums are based on risk profile). Each sickness fund sets its own contribution rate, usually between 12 percent and 15.5 percent of a person’s gross earned income. But the '07 reform sets one contribution rate for all sickness funds, which will likely clock in at slightly more than 14 percent of an individual’s income, split between employer and employee (with employees paying slightly more).

Instead of paying directly into the sickness funds, employers and employees will contribute to the federal government's new "central health fund" (originally due in 2007, but now postponed until 2009) which will take that money—along with tax revenue—and distribute payments to the sickness funds. If a particular sickness fund doesn't get enough cash from the health fund it can charge its enrollees an additional premium that is at most one percent of the insured party's income.

Pharmaceuticals: The '07 reform lets SHI stipulate maximum reimbursement amounts for patented pharmaceuticals based on cost-benefit assessments, which for the first time, are required by law to comply with international standards of evidence-based medicine. This is an important step forward in reducing wasteful and ineffective procedures, and something worth emulating in the U.S. Maximum reimbursement rates will not apply to drugs that are proven to be cost-effective or lack a therapeutic alternative. The reform also requires a second opinion by specially qualified physicians whenever a doctor wants to prescribe a drug that is expensive or considered risky.

So there you have it--the meat of recent health care reforms in Germany. Note that the German system is becoming simultaneously more centralized (insurance is mandatory, contribution rates will be standardized, the creation of the central health fund) and more competitive (opening of sickness funds, introduction of new plans, creation of fluid integrated care contracts).

You might think that this is a testament to bipartisan consensus or some sort of European pragmatism, but it's actually the product of partisan gridlock. This year there are elections in some German states, so none of the grand coalition insiders wanted to give up too much ground. Meanwhile, everyone wanted to delay the most structurally radical element of the reform, e.g. the creation of the central health fund.

So, as Thomas Mayer, the chief European economist at Deutsche Bank, told the New York Times in 2006, for the time being, at least, the German reform sticks with "the same old system" but with a few tweaks. As a result, few are happy with the new status quo--because it's basically the old one. Excessive compromise has left no one happy.

Comments

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Better to be submissive and to kow-tow. Let the French be our guide

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Is is going to happen! For the first time in ages we have strong, courageous leaders who recognize the importance of the health care crisis and are readly to take action. I am very optimistic and most physicians in our system seem to be also.

Charles Clark,Sr., M.D.

www.charlesclarknovels.com

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Undoubtedly interesting facts! We tend to focus only on our problems and such narrow-minded view can lead us to only spoil important things. Despite of the possibility to learn from other nations` faults or mastery we are merely neglecting this option. As one of the Toronto life insurance brokers I`m delighted by discovering the insurance system at different parts of the world. Thanks for the great time.

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Undoubtedly interesting facts! We tend to focus only on our problems and such narrow-minded view can lead us to only spoil important things. Despite of the possibility to learn from other nations` faults or mastery we are merely neglecting this option. As one of the Toronto life insurance brokers I`m delighted by discovering the insurance system at different parts of the world. Thanks for the great time.

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Undoubtedly interesting facts! We tend to focus only on our problems and such narrow-minded view can lead us to only spoil important things. Despite of the possibility to learn from other nations` faults or mastery we are merely neglecting this option. As one of the Toronto life insurance brokers I`m delighted by discovering the insurance system at different parts of the world. Thanks for the great time.

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While it looks like there is a lot in the German system that would be a reasonably good fit with the U.S. culture, I wonder how the broad middle class and lower middle class would react to the concept of public financing of health insurance if they clearly understood that the cost to them would be 15% of their incomes with half nominally paid by employers which is almost

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Due to this set-up, until recently some 200,000 Germans were uninsured—about 0.2 percent of the population. As of April '07, all Germans must purchase health insurance. In the past, private insurers (who traditionally offer plans with many bells and whistles) had the right to refuse coverage for high-risk individuals. Now, they must take all comers. In this way, the new German plan is like Hillary Clinton’s proposal for health care reform: insurers can no longer shun the sick but everyone must sign up—citizens cannot wait until they are sick to enroll.

[robertdfeinman]

If you have any citations it would be useful if you give them in essays like this.

Not explained is why one would want to shift to a private plan. Is it because they offer a different set of payment options (deductibles and the like) or are there any restrictions (or lack of) as to which health care providers one can visit?

The drug price caps are also not clear. Why would there be a patented drug for which there is no "evidence based" medicine? Does imply using a drug for a purpose for which it was not approved?

How does this compare with "Maximum reimbursement rates will not apply to drugs that are proven to be cost-effective or lack a therapeutic alternative. "

The highest rates seem to be charged by just those drugs that are effective (I'm not sure what cost means when there is no alternative) and unique.

We've had this discussion before, is a drug that put cancer into remission for six months or a year cost-effective if it costs $100,000 (not uncommon in the US)?

Perhaps the plan is more detailed than your outline, but the devil is in the details and pols like to leave things ambiguous, especially when telling the whole story might prove unpopular.

[life insurance broker Toronto]

Undoubtedly interesting facts! We tend to focus only on our problems and such narrow-minded view can lead us to only spoil important things. Despite of the possibility to learn from other nations` faults or mastery we are merely neglecting this option. As one of the Toronto life insurance brokers I`m delighted by discovering the insurance system at different parts of the world. Thanks for the great time.

[Barry Carol]

Niko,

Great article.

Could you clarify whether the 14% standardized contribution rate (50-50 employee/employer split) applies to the entire income of highly paid people or is there a cap beyond which it does not apply? I also understand that the French system is financed largely by a 13% payroll tax (not sure of the split between employee and employer), and it only covers about 75% of total healthcare costs according to Ezra Klein.

I have argued several times that if the U.S. went to public financing of health insurance with a payroll tax, the rate would probably have to be in the 15% range give or take a little which is about what large corporate employers spend now (including the employee contribution, if any).

While it looks like there is a lot in the German system that would be a reasonably good fit with the U.S. culture, I wonder how the broad middle class and lower middle class would react to the concept of public financing of health insurance if they clearly understood that the cost to them would be 15% of their incomes with half nominally paid by employers which is almost exactly the same as the current 15.3% FICA tax, though the 12.2% Social Security portion of that tax only applies up to $102,000 of income in 2008, but over 85% of the workforce currently earns less than that amount. Virtually all economists agree that employees, in reality, also pay the employer's share in the form of lower wages than they would have otherwise been paid. Advocates of public financing of health insurance in the U.S. need to be honest and admit that the broad middle class will have to pay to insure the broad middle class. We are not going to be able to come close to paying for this merely by raising taxes significantly on high income people. Moreover, we also need to understand that there are other significant and important public priorities besides health insurance that also have to be paid for somehow.