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Major reform of German SHI contributions

Country: 
Germany
Partner Institute: 
University of Technology, Berlin
Survey no: 
(16)2010
Author(s): 
Michael Bäumler, Leonie Sundmacher and Britta Zander
Health Policy Issues: 
Role Private Sector, Funding / Pooling
Reform formerly reported in: 
Health Policy in Germany after the election
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no yes yes no no

Abstract

The German coalition government has implemented major changes in the funding of the statutory health insurance. In 2011, the uniform contribution rate will be raised to 15.5% of the contributory income: 8.2% are paid by the insured and 7.3% by the employer. Future increases of contributions will be collected as income-independent surcharges paid by the insured; the employers? contributions will be capped at the current level. For low-income individuals, there will be subsidies financed by taxes.

Recent developments

Current statutory health insurance (SHI) contributions and the role of surcharges

The nationwide uniform SHI contribution rate is paid in almost equal parts by the insured and his/her employer. The individual amount depends on the individual income. These contributions are collected by the health fund (c.f. Ognyanova, Diana and Reinhard Busse. "Health Fund now operational". Health Policy Monitor, May 2009) and allocated to the sickness funds based on individual demographic characteristics of the insured and supplements for certain well-defined diseases. In 2010, the contribution rate was set at 14.9%, of which 7.9% were paid by employees and 7.0% by the employers. After the introduction of the health fund in 2009, the contribution rate was initially at 15.5% but was lowered within the framework of the government's deficit spending program. In addition, if sickness funds have not been able to cover their costs, they could raise a surcharge limited to €8 per month or 1% of the insured's wage and salary. This payment has been collected directly by the respective sickness fund. In case allocations from the health fund are higher than expenditures of sickness funds, the sickness funds may reimburse money to their insured. However up to now, only a small number of sickness funds has claimed surcharges or paid back money.

Changes in SHI funding by the Health Financing Act (FinG)

As announced after the election, the governing conservatives (CDU/CSU) and the liberal democrats (FDP) intended to strengthen the role of these surcharges by implementing the Health Financing Act (FinG) in order to separate labour costs from increasing health expenditures. Since costs for health care are expected to increase, the contribution rates will be raised back to 15.5% in 2011: insured pay 8.2% of their income, 7.3% are paid by employers. Income-related contributions will be legally capped at this level of 15.5% in the future. To fund further future capital needs of sickness funds, they can individually increase their surcharges. Depending on each sickness fund's financial power, substantial differences between these surcharges can be expected. This way competitive elements will be re-introduced into the market for SHI sickness funds implying significant price signals and encouraging the insured persons to choose efficient sickness funds indicated by low surcharges.

In contrast to the old system of surcharges, they are not limited to a fixed sum or a certain percentage of the contributory income which will potentially lead to substantial financial burden for low-income insured. To overcome this burden, accompanying compensation mechanisms will be introduced: The Federal Insurance Authority (Bundesversicherungsamt), up to now in charge of calculating the national uniform contribution rates of the SHI, will be in charge of calculating a "nationwide average surcharge", reflecting the nationwide average gap between payments of the health fund to the sickness funds and the sickness funds' expenditures. In case the average surcharge would exceed 2% of an insureds' contributory income, the individual's income-dependent contributions will be decreased, i.e. will on average be limited to a total of 10.2% of the contributory income. However, as individuals might be members of sickness funds with either lower or higher surcharges, the actual additional financial burden of the insured will highly differ, implying a substantial price competition. Financial resources needed for individual subsidies, i.e. the decreased contribution rates, will be funded by taxes. The governing parties claim this compensation mechanism to be more equitable, as all tax payers (including those individuals within the private health insurance) will contribute instead of SHI members only.

The role of private health insurance after 2011

In addition, the governing parties have strengthened the role of the private health insurance in Germany. Up to 2010, employed individuals only have had the chance to opt out of the SHI and become a member of a private health insurance if their annual income has exceeded €48,500 for three consecutive years. The FinG will allow individuals to opt out of the SHI already after the income has exceeded €48,500 for one year. Both of these plans are in line with the announcements made after the coaliton treaty had been presented in 2009 (c.f. Zander, Britta et al. "Health Policy in Germany after the election". Health Policy Monitor, November 2009).

Further changes implemented by the Health Financing Act (FinG)

Apart from these changes, the Health Financing Act contains additional cost-containment measures and minor changes. As this paper puts an emphasis on the changes in SHI contributions, further changes due to the Act as well as the major changes in the pricing of pharmaceuticals were not announced after the election and are not the subject of this paper.

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Characteristics of this policy

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

By strengthening the role of income-independent surcharges, this reform pushes futher a major change in the funding system of the German SHI which was first introduced in 2009. This is highly controversial. The opposition parties and a large share of the population including unions, social associations and the media critizise the new plans for potentially increasing inequalities in health and the provision of services. They also argue that the reform is not well-conceived and bureaucratic. Although some health economists agree with strengthening the role of flat-rate fees, they argue the new system of combined income-related and income-independent contributions will be a bureacratic system which won't improve the future sitatuon of the SHI's funding.

Purpose and process analysis

Current Process Stages

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

Initiators of idea/main actors

  • Government: Although the coalition treaty announced the changes, a heated debate arose shortly after the treaty had been signed. The FDP supported per-capita fees as an instrument of SHI financing, whereas the CSU opposed this financing mechanism.
  • Payers: The refom strengthens the position of the private health insurance companies. The private sector will have a stronger position after the reform.
  • Civil Society: In general employers do support the separation of health care and labor costs. The unions and social associations oppose the reform.
  • Scientific Community: The German Society for Health Economics claims the reform plans lack a clear concept for the future. It supports the separation of health care and labor costs and requests further competitive elements.
  • Media: Most of the media commented the plans rather critical. In particular, arising inequalities and a higher complexity raised concerns.
  • Political Parties: The three opposition parties oppose this reform. They strongly support the idea to strengthen and extend the role of income-dependent contributions to the SHI instead of introducing capitation-like surcharges.

Stakeholder positions

The coalition parties are the initiators of the health reform. The reform is indeed in line with the plans announced shortly after the election. However, the CSU opposed the introduction of income-independent SHI contributions in the beginning of the debate. As a part of the 2009 election program, the FDP opted for income-independent instead of income-related contributions. Although income-related contributions have not been completely abandoned, the current reform is a milestone for the introduction of capitation fees within the German SHI. Increasing expenditures will increase the importance of these premiums in the future. Although leaders of the German Society for Health Economics as well favor income-independent flat-rate fees instead of income-related contributions, they do not support the current reform. In line with the former FDP election program, they opted for using flat-rate fees as the only instrument for SHI contribution.

In contrast, the opposition parties, the unions, a large share of the population as well as a large share of the media criticize the growing importance of income-independent contributions within the SHI because of the potentially increasing inequity within the system. The opposition claims that these new regulations threaten the fundamental elements of the SHI by abandoning the established principle of solidary financing.

As a second result of the reform, more individuals will be able to opt out of the SHI and join the private health insurance. This will increase the market share of the private health insurance and decrease the number of healthy and wealthy in the SHI. As the FDP favors the role of the private sector in the German economy, critics argued that the private health insurance sector heavily influenced the decision making in the reform process.

The seperation of labor costs from increasing health expenditures was one of the major policy requests from the employers. It was a central goal in the decision-making process. They were however, opposed to the increase in their share of the income-dependent contribution by 0.3% points.

Actors and positions

Description of actors and their positions
Government
The Liberal Democratic Party (FDP)very supportivevery supportive strongly opposed
The Christian Democratic Party (CDU)very supportivesupportive strongly opposed
The Christian Social Party (CSU)very supportiveopposed strongly opposed
Payers
SHI sickness fundsvery supportiveopposed strongly opposed
Private Health Insurance Companiesvery supportivevery supportive strongly opposed
Civil Society
The Unionsvery supportivestrongly opposed strongly opposed
Social Associationsvery supportivestrongly opposed strongly opposed
Employersvery supportivesupportive strongly opposed
Scientific Community
German Society for Health Economicsvery supportiveopposed strongly opposed
Media
The mediavery supportiveopposed strongly opposed
Political Parties
The Social Democratic Party (SPD)very supportivestrongly opposed strongly opposed
The Green Party (Bündnis 90/Die Grünen)very supportivestrongly opposed strongly opposed
The Left Party (Die Linke)very supportivestrongly opposed strongly opposed
current current   previous previous

Influences in policy making and legislation

Although the smallest governmental party CSU obviously opposed the FDP's idea to strengthen income-independent surcharges after the presenation of the coalition treaty in 2009, major ideas of the FDP were implemented by the Health Financing Act. However, the original FDP's plan to replace income-related contributions completely by income-independent fees was not feasible following heavy resistance of the opposing and as well governing parties. Due to the governing coalitions' majority in the Bundestag the opposition parties did not have a strong vote in this legislative act. 

Legislative outcome

Enactment

Actors and influence

Description of actors and their influence

Government
The Liberal Democratic Party (FDP)very strongvery strong none
The Christian Democratic Party (CDU)very strongstrong none
The Christian Social Party (CSU)very strongweak none
Payers
SHI sickness fundsvery strongweak none
Private Health Insurance Companiesvery strongstrong none
Civil Society
The Unionsvery strongweak none
Social Associationsvery strongweak none
Employersvery strongstrong none
Scientific Community
German Society for Health Economicsvery strongweak none
Media
The mediavery strongweak none
Political Parties
The Social Democratic Party (SPD)very strongweak none
The Green Party (Bündnis 90/Die Grünen)very strongweak none
The Left Party (Die Linke)very strongweak none
current current   previous previous
Private Health Insurance CompaniesThe Liberal Democratic Party (FDP)The Christian Democratic Party (CDU), EmployersThe Christian Social Party (CSU), SHI sickness funds, German Society for Health Economics, The mediaThe Unions, Social Associations, The Social Democratic Party (SPD), The Green Party (Bündnis 90/Die Grünen), The Left Party (Die Linke)

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

Insured, employers, SHI sickness funds and the private health insurance will be affected by the Health Financing Act. According to their position towards these plans, one could distinguish 'winners and losers' of this reform.

Due to the new surcharges regulation, employed people are likely to face further financial burden because all future contribution increases in the SHI-system will have to be financed by them only. Further, they will only be covered by the compensation scheme if average surcharges exceed 2% of the contributory income. This will affect low-income people in particular. So far, these surcharges could not exceed 1% of the gross income or €8 per month. However insured may avoid paying surcharges by choosing a sickness fund charging lower or even no surcharges. However certain social groups might not be able to change their sickness funds, e.g. very aged or individuals suffering from dementia or mental disorders.

The employers' contribution rate will be capped at a new level of 7.3%. This implies a financially better position of the employers in the future. They won't have to bear future increases. Sickness funds with additional financing demand will have to raise or increase their surcharges. This is likely to decrease the sickness fund's attractivity. In contrast, efficient sickness funds or those with a good risk structure and/or high allocations from the health fund will benefit from this reform and be winners of the reform.

Following a decrease of the minimum time a person has to earn a certain wage level before being eligible to change from the SHI to the private health insurance, the SHI will most likely lose well-off and healthy payers to the private insurance. Thus, the private health insurance will benefit from this reform.

Monitoring and evaluation

There is no evaluation procedure foreseen for this reform.

Expected outcome

This reform was to be expected after the presentation of the coalition treaty in 2009. Thus, there were no major changes in reform plans. However, in contrast to announcements of the FDP before the elections, current amendments are not entirely substituting income-related contributions to SHI by flat-rate fees.

As this reform is predominantly a reform of fundraising, effects on quality have not been subject of the debate. However, the reform in 2008 intended to focus on quality competition rather than price competition by equalizing contribution rates to all sickness funds. After this reform, focus will be on prices instead of quality.

It is obvious that the governing coalition parties are in favour of strengthening the private health insurance sector by simplyfying the process by which individuals are allowed to opt out the SHI. In case the private insurance sector becomes more important, this might result in incentives for health care provider to focus on privately insured implying a potential decrease in treatment quality of SHI patients and less equity between SHI members and privately insured.

Due to the increase in income-related contribution rates, additional contributions of € 6.3 billion are expected for the sickness funds. In addition, accompanying cost-containment measures might only be effective in the short run. Moreover, due to those individuals opting out of the SHI sytem towards private health insurance, a substantial part of contributions might be lost in the future.

Impact of this policy

Quality of Health Care Services marginal rather marginal fundamental
Level of Equity system less equitable two system more equitable
Cost Efficiency very low very low very high
current current   previous previous

The aim of the reform was to implement major changes in the funding of the SHI and to separate future health costs from labour costs. Some cost-containment measures were as well implemented within the reform. However the German governmental parties did not adress concerns of efficiency in health care delivery.

The reform potentially imposes new financial burdens on low-income individuals and advantages individuals with high incomes. This could imply increasing health disparities in the German population.

References

Sources of Information

Reform formerly reported in

Health Policy in Germany after the election
Process Stages: Policy Paper, Idea

Author/s and/or contributors to this survey

Michael Bäumler, Leonie Sundmacher and Britta Zander

Suggested citation for this online article

Michael Bäumler, Leonie Sundmacher and Britta Zander. "Major reform of German SHI contributions". Health Policy Monitor, October 2010. Available at http://www.hpm.org/survey/de/a16/2