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Proposals for SHI reform

Country: 
Germany
Partner Institute: 
University of Technology, Berlin
Survey no: 
(2)2003
Author(s): 
Susanne Weinbrenner, Reinhard Busse; reviewed and edited by Sophia Schlette
Health Policy Issues: 
Funding / Pooling
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes no yes no no no no

Abstract

In August and September 2003, two major proposals to reform the social security systems in Germany were presented to the public. The Goverment appointed Rürup Commission could not settle on one proposal. One part voted for a citizens? insurance scheme based on the individual's ability to pay, the other group favoured flat-rate health premiums. The opposition party's Herzog Commission also favoured the flat-rate health premiums yet in combination with capital stock.

Purpose of health policy or idea

In August and September 2003, two major proposals on how to reform the German social security systems were presented to the public. The first proposal was developed by an ad-hoc commission appointed by the re-elected government (Rürup Commission). The second proposal, elaborated by the so-called Herzog Commission, had been commissioned by the opposition party (Christian Democrats) with substantial input from a major consulting company.

The "Commission for financial sustainability of social security systems" (Rürup Commission) was set up by MoH Ulla Schmidt in November 2002, shortly after the governing coalition of Social Democrats (SPD) and the Green Party (Bündnis90/Die Grünen) had been confirmed in power in the general elections held in September 2002.

The commission was established when in the post electoral period a major deficit in the pension funds was "discovered". Green Party leaders and parts of the SPD insisted on exploring the issue of financial sustainability, combining a long-term perspective with inmediately effective, short-term measures.

The commission was headed by Bert Rürup, a professor of economics and  public finance, who is also a member of the Advisory Council for National Economic Development and of the German Social Democratic Party (SPD). Members came from the scientific community as well as from various sectors of civil society:  the industry, the unions, statutory and private health insurance companies, consulting agencies, delegates from the regions (Länder) and representatives from German cities and municipalities.

The commission submitted its final report in late August 2003.

Meanwhile, the opposition group in parliament, the Christian Democratic Party (CDU/CSU) likewise appointed a commission ("Social Security Commission"), with the very much the same task. This commission, presided by and named after Roman Herzog (CDU), former German President, was also composed by a wide range of experts and representatives from civil society. Financial projections were assisted by a ubiquituous consulting company. The Herzog Commission also presented its report a month later, at the end of September 2003.

Looking at both reports, the proposals concerning the statutory health insurance (SHI) reform can be assessed along two major questions:

  1. Who shall be insured (workers only, workers and employees, all employees including civil servants, self-employed and the liberal professions, or the entire population)?
  2. On which basis shall the premiums be calculated upon (income-related or not, with or without capital stock)?

The Rürup Commission was deeply divided and could not agree on one single strategic proposition. One part of the commission favored the so called citizens' insurance scheme as the future funding source. The other part pleaded for a system of flat-rate health premiums.

The citizens' insurance scheme (Lauterbach) is based on the premise that contributions to health care insurance should be levied in accordance to the ability to pay. Its basic principles are

  • Inclusion of all citizens into the health insurance scheme, including  civil servants and self-employed
  • Abolition of the income threshold for opting out of the SHI, with a de facto integration of private health insurers into the SHI system
  • All types of income (including from rent, property, else) to be subject to the calculation basis of contributions.
  • Income ceiling for contributions to be increased to the same threshold as for statutory pension insurance (€ 5100).
  • Interpersonal income redistribution will remain part of the health insurance scheme.

This insurance scheme covers the entire population with an income related contribution rate on all types of income.

Under the flat-rate health premiums (Rürup) proposal, the principle of equivalence of contributions and benefits is considered most important. While the exact definition of benificiaries and benefits of this health care scheme is lacking still, the key elements of the flat rate scheme are:

  • Everyone contributes the same premium, regardless of income and health status.
  • Contributions to SHI are to be uncoupled from labour costs by shifting from wage-based contributions to a community-rated health premium to be paid entirely by the insured.
  • Risk segregation between SHI and PHI is to be reduced, as there will be no more incentives for wealthy people to choose PHI.
  • The accuracy of income redistribution is to be enhanced by shifting this task to the tax system, i.e. by subsidizing the health premiums of the poor.
  • Interpersonal income redistribution will be subject to income tax.

This insurance scheme is likely to also cover the entire population, with a flate rate contribution independent from income, though taking all kinds of income and revenue into account. With no employer contribution to the health insurance premium, the flat-rate premium scheme is further expected to contribute to lowering labour cost.

The Herzog Commission also suggested a flat rate health premium scheme, differing from the above plan in that it combines flat rate premium payments with the building of a capital stock, aimed to compensate individually for illness and aging. The main principles are:

  • Inclusion of the whole population.
  • Gradually uncoupling Health insurance to be uncoupled from wage-related labour costs over ten years.
  • From 2003 to 2013 the contribution system remains income-based. In addition a collective capital stock is to be built through contributions of all insured in order to compensate for the missed provision of capital by the older people.
  • From 2013 on switch from a pay-as-you-go system to a flat-rate health premium system with an additional capital stock. The capital stock will allow for all people older than 45 to freeze premium rates at the level corresponding 45 years of age.
  • Income redistribution will be achieved through taxes.

All proposals presented in 2003 aim to retain some kind of social redistribution, to maintain access to high standard medical services, and to decrease so called wage-related labour costs.

At the moment it is difficult to estimate any outcomes of the reform proposals as many issues still remain ambiguous, requiring further clarification and/or better data:

  1. Reliability of projections (demography, productivity, cost-shifting impact, tax burden for subsidies and redistribution)
  2. Legal problems concerning the PHI, i.e. guarantee of assets or portability of aging accruals.
  3. With regard to flat-rate health premiums: Lack of reliability of tax related redistribution in times of urging national budget deficits
  4. With regard to the Citizens' Insurance scheme: With income related contribution rates, revenue of health insurance remains dependent on income development/overall economic performance. 
  5. Concerning flat-rate health premiums in combination with capital stock: Issue of intergenerational redistribution, a highly controversial issue, remains to be solved.

All stakeholders blame each other of having presented unviable solutions,  unable to reach the objectives of either short-time consolidation or sustainable financing.

Non-financial incentives need to be weighted: one could be to increase equity (citizens' insurance), as opposed to more risk equivalence in case of flat-rate health premiums.

Financial incentives: With regard to long-term measures, both systems claim to reduce wage-related costs (labor cost). The assumption is that if  labor costs are reduced, more (profits) will be invested in new workplaces, more jobs with lower social contribution rates will increase available income and generate positive effects on demand and consumption.

Main points

Main objectives

Short term relief from the financial pressure on the SHI by short-term measures. Sustainable financing of the German SHI. Equal access to high quality health care for the entire population.

Type of incentives

Financial and non-financial

Groups affected

The whole German population, especially employers and employees., SHI companies, PHI companies, Providers

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Characteristics of this policy

Degree of Innovation traditional innovative innovative
Degree of Controversy consensual highly controversial highly controversial
Structural or Systemic Impact marginal rather fundamental fundamental
Public Visibility very low high very high
Transferability strongly system-dependent system-neutral system-neutral

  • Both proposals the flat-rate Health premiums as well as the citizens' insurance scheme will result in very explicit changes of the existing funding system and are therefore an innovative approach against the background of the current system.
  • The debate is still ongoing with a high likelihood to more public disputes.
  • The flat-rate health premiums as well as the citizens' insurance scheme will probably have a noticeable impact on the German Health Care system.
  • The media coverage is not as high as could be given the fact that the whole population will be affected.
  • As the reform ideas are dealing with complete changes of the funding system they are transferable at least to other social insurance systems.

Political and economic background

The overall economic situation is characterised by a rising pressure on the German national budget, the national economy and thereby on the social security systems. Against the background of excessive national debts and the requirements of the Maastricht criteria, Germany has to work on the national budget deficit.

The height of work related costs is regarded as an obstacle to competitive capacity and more employment. These factors are estimated as condition precedent to recovery of the national economy. As contribution rates to the social security system are connected with employment and wage, the overall economic situation has a strong impact on the social insurance system as well as on demand and consumption.

The problems concerning the SHI are reflecting the high level of unemployment and an increasingly ageing society in terms of decreasing income revenues of SHI in contrast to constantly rising health care expenditure.

The financial trend of the SHI at midyear 2003 showed again a shortfall about approximately 1.8 billion €. Even though the increase rate seems to lower the accounts are expected to be negative at the end of the year.

The ideas formulated by the Rürup Commission are not new. Taking the Swiss health insurance system as a model, a flat-rate health premium scheme had been displayed earlier by the Advisory Council for the Development of the National Economy (Titel Prüfen).

The alternative model was probably taken from the Netherlands where the funding basis of statutory health insurance is broader than to Germany.

In view of the SHI funding reform there have been several preceding policy papers 

Agendas from different political parties:

  • The expert report from the Advisory Council for Development of the National Economy
  • Several scientific papers dealing with different models of per-capita premiums.
  • The 'Eckpunkte Papier' from the FES (Friedrich Ebert Stiftung) a foundation contiguous to the Social Democrats and papers from the Christian Democrats and the Free Democrats.

All these papers share the main goal of stable contribution rates.

Complies with

EU regulations

Consolidation of the national budget, necessity to meet the Maastricht Criteria

Change based on an overall national health policy statement

Stability of SHI contributions to decrease the work related costs and to increase the available income in order to stimulate the German economy

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? yes no yes no no no no

Origins of health policy idea

Appointed by the Minister of Health Ulla Schmidt in November 2002 the Rürup Commission was to develop proposals on financial sustainability for the German social security systems.

During their working period clashes within the subgroup on SHI as well as discussion interna often (were) leaked outside the commission. The general public was aware and took part in much of  the controversies. The head of the commission Bert Rürup himself stated publicly that he favoured the flat-rate health premium system thereby prejudicing the chance of reaching consensus in the commission's sub-group.

The idea of a system of flat-rate health premiums (pauschale Gesundheitsprämien) had already been disseminated with the report of the Advisory Council for Development of the National Economy (SVR-Gutachten zur gesamtwirtschaftlichen Entwicklung 2002) in spring 2003. It was again advanced by the Rürup Commission. Additionally there have been several preceding scientific reports on this type of funding (Wasem, Greß, Rothgang 2003). Switzerland probably served as a role model for this proposal. Driving forces behind the proposal are certain sectors of the research community, particularly national economists and business economists.

The alternative proposal, the citizens' insurance scheme (Bürgerversicherung) was also submitted by the commission. It was strongly  supported by Bert Rürup's chief opponent  within the commission - Karl Lauterbach, a physician and professor of health economics, member of the SPD (like Rürup) and confident of the Minister of Health (unlike Rürup). The idea of the citizens' insurance scheme which is based on an expansion of income sources of the SHI is possibly influenced by health insurance models from France, the Netherlands and Austria (Die ZEIT 47/2003). Proponents are other parts of the Social Democrats; the Green Party, the unions and consumer associations.

Regardless of the system choice politicians will have to make the Rürup Commission recommends accompanying measures. Specific reform measures need to the expenditure side of the health care system (e.g. enhancing quality management and integrated care), as well as family policy, increased female labour participation and productivity, education policy and fiscal reform.

The proposal of the Herzog Commission to combine flat-rate health premiums with an additional capital stock to be built over various years has also been presented earlier. Henke et al. (2002) had developed the idea of provision of capital for health care costs in seniority. Driving forces are the opposition in parliament and parts of the micro-economist research community. The Herzog Commission also proposed complementary short term measures to achieve cost-containment.

There are no small scale examples.

Approach of idea

The approach of the idea is described as:
renewed: Ideas derived from other European countries, renewed debate in Germany since 2002

Stakeholder positions

As described the Rürup Commission was split into two camps. Reflecting these, two opposed reform directions are stated in the commissions report. The decision on an effective, sustainable long term funding system was left to be taken by the politicians as the commission could not agree on a concerted proposal. Government parties, scientific community, media and public remain also divided.

In addition the proposals were rejected by a minority group vote.

Members of the minority group came from the Social Democrats, the Green Party, and, chiefly, from the unions and consumer associations. This group brought their own policy paper before the SHI subgroup of the Rürup Commission. They argued for a conservation of the existing SHI, but broadening the funding basis by means of elevating the income threshold for compulsory insurance and by comprising all types of earned income. Furthermore they pleaded for the outsourcing of socio-political tasks like redistribution issues to the tax system e.g. by up-rating the taxes for tobacco and alcohol. After all they submit a reform of the co-payments for pharmaceuticals. All together the proposals are quite similar to the citizens' insurance scheme.

The opposition in parliament (the Christian Democrats) also assigned a commission for developing alternative proposals with respect to sustainable financing of the SHI (statutory health insurance). The so called Herzog Commission also proposed a system of flat-rate premiums for the SHI. The difference to the Rürup Commission mainly consists in changing gradually from a pay-as-you-go procedure to a partially capital covered procedure.

Influences in policy making and legislation

The short term measures concerning health insurance, submitted by the subgroup on SHI, are to some extent adapted and incorporated into the Law for the Modernisation of the SHI (Gesetz zur Modernisierung der GKV - GMG) becoming effective in January 2004. The negotiation process between government and opposition was remarkably fast, with very little changes on the GMG.

The funding system to-be of the SHI is still not defined. Depending on the proposed funding system the debate in parliament will be more or less controversial and accordingly the negotiation process will be more or less complicated.

Regardless the chosen system, formal legislation is required to realise these fundamental changes.

Legislative outcome

n/a

Adoption and implementation

  • The actors and stakeholders involved will be the Ministry of Health, the Ministry of Finance, SHI and PHI companies, parliament and the entire population with special impact on some population subgroups depending on the chosen system.
  • In terms of accompanying measures concerning the expenditure side of the system, payers and providers will be affected.

It is very difficult to foresee the consequences possibly occurring during the decision process.

As the 120 year old SHI system is at stake there will probably start an active public debate on the two main reform proposals with the involved groups wheeling and dealing their interests.

The parliamentary debate will probably also be controversial as the consequences of this reform will have a formerly unknown impact on the whole healthcare system.

Monitoring and evaluation

There is no planning for evaluation.

Expected outcome

Concerning the future financing system it depends on the system chosen.

Discussing the main arguments in favour of the flat-rate health premiums may give some insights:

Disconnection of contribution rates and work related costs is not necessarily tied to this funding system.
The impact of this measure is possibly overestimated with respect to positive effects on employment, consumer behaviour and the introduction of market mechanisms into the Health Care System.
The problem of risk-demixing between SHI and PHI is not tied to a health premium system.

Social redistribution via tax system is always depending on a stable national economy. In times of high national debts income redistribution monies are likely to be subject to negotiations concerning the national budget and thereby at stake.

Impact of this policy

Quality of Health Care Services marginal marginal fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low very low very high

  • As basically the revenue side is reformed, the impact of both reforms on quality of services and cost-effectiveness cannot be expected too high.
  • The impact on equity is opposed. The citizens' insurance scheme is aiming in maintaining or even improving equity, whereas the health premium system must be adjusted by tax funded redistribution benefits for low-income people.

References

Sources of Information

http://www.bmgs.bund.de/

http://www.soziale-sicherungssysteme.de/

http://www.bundesregierung.de/Themen-A-Z/Agenda-2010-,9757.517777/artikel/Vorschlaege-der-Ruerup-Kommiss.htm

http://www.die-gesundheitsreform.de/index.4ml

http://www.arbeitnehmerkammer.de/sozialpolitik/seiten/1_politik_sozialkommission.htm

Author/s and/or contributors to this survey

Susanne Weinbrenner, Reinhard Busse; reviewed and edited by Sophia Schlette

Suggested citation for this online article

Susanne Weinbrenner, Reinhard Busse; reviewed and edited by Sophia Schlette. "Proposals for SHI reform". Health Policy Monitor, November 2003. Available at http://www.hpm.org/survey/de/a2/2