TCS Daily

A Bit, But Not Too Much?

By Mike Schier - July 7, 2003 12:00 AM

Germany's most prominent political figure these days is Horst Seehofer. The 54-year-old conservative, who served six years as minister of health in Helmut Kohl's government, represents the current discussion about the future of public health care. Seehofer is torn between the old German system (which served as a role model in Europe for decades) and new far reaching reform. The major question on most Germans' mind is: How much reform is necessary? Seehofer's answer is that of many Germans: a bit, but not too much.

Recently the Bundestag discussed for the first time two types of reform. One was presented by Social Minister Ulla Schmidt (SPD), the other by Christian Democratic party (CDU) leader Angela Merkel. She stepped in for Seehofer, who refused to present the ideas of his own party -- which just shows how emotional and personal the debate is. Both reforms aim to change the way health insurance is financed.

In Germany premiums for public health insurance (currently an average of 14.4 percent of income) are shared equally between employer and employee. Which means: a German company has to pay an extra 7 percent of a wage just for health insurance. Additional payments for unemployment and retirement insurance add up to more than 21 percent. In recent years this amount has risen dramatically. The German economy is facing a vicious circle: insurance-companies lose billions of euros because of growing unemployment. As a result premiums are rising -- which causes major layoffs.

To break this circle politicians are trying to reduce costs for the companies. Through that, they hope, businesses might be able to hire more people, which automatically would bring new money into social systems. The Social-Democrat government wants to privatize insurance of sick leave benefits; the conservative opposition has similar ideas for dental care. Seehofer considers both plans as "unsocial" and represents thereby a majority of the German population.

But the need for action is evident: After the Americans and the Swiss, Germans pay the most money on health care in the world, but the treatment they get is only within the European average. So experts have called for structural reforms long before the current economic crisis heightened the need for it. But German politicians have ignored these calls for far too long. Now they have to solve both problems in one go: the reconstruction of the health system and the ways of financing it.

So what does Germany need? Most important is a reform of the way the health system is financed. When German public health care was reinvented after World War II the vast majority of the population lived on a monthly income paid by an employer. But while circumstances changed rapidly over the last 50 years health care has not. In 2003 monthly salaries are just one form of income, others are renting out of property, stocks and shares or saving plans. But none of that income is included in the amount of health insurance premium one pays. If Germany wants to continue an income-based public health care it has to consider all forms of income. Otherwise companies will continue to shift their factories into eastern Europe, where work costs are much cheaper. The enlargement of the EU means a big risk to Germany in that context.

Another German specialty is that self-employed and civil servants are not allowed into public health care system, they have to be insured by private insurance companies. Also, employed workers who earn more than €3,825 a month have the option to leave public health care and move to private insurance companies, which are -- at least for young people -- much cheaper. It is a huge irony of the German system that the rich can leave a social system, while the poor can't. That's one reason Seehofer is pleading for a citizen-insurance ("Buergerversicherung"), which some experts expect to reduce insurance premiums by 2 percent.

However, the question is whether an income-based financing system will be a lasting solution to the current problem? Late last year Chancellor Gerhard Schröder called for a commission of experts to present ideas for a reform. The highly controversial work of that commission under economic scientist Bert Ruerup presented two paths into the future which couldn't be more different. One was Seehofer's "Buergerversicherung", which would take into account all citizens and all forms of income. The other plan is a flat-rate-system, in which every person pays a certain amount no matter how much they earn. People with low incomes would be compensated through tax relief. A similar system is working very well in Switzerland, which is the main argument for this reform.

Even though the 26 experts of the group could not agree on one of the two plans, they agreed a radical change was needed within the next eight years. And they agreed on something else: Any kind of a mixture between the two concepts would be a worse solution than one of the two on its own. But that mixture is exactly what politicians are aiming for.

Last week minister Ulla Schmidt (SPD) and Seehofer (who is now back representing the opposition) agreed they would work hard on a compromise. Since a health reform has to pass both chambers of parliament, which have different majorities (SPD and Greens in the Bundestag and conservatives in the Bundesrat) there is no way around finding such a compromise. By the end of July the three parties want to find an agreement, which is more than likely to have elements of both of the commission's plans. That will probably solve a bit of the problem and lower the costs for the companies. But the structural problems will remain. In other words, Germany is moving forward but its health care system has a long way to go.

Mike Schier is political editor of the "Muenchner Merkur", Munich, Germany.

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