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The following OECD assessment and recommendations summarise chapter 6 of the Economic survey of Germany published on 9 April 2008.
Healthcare reforms should help to increase efficiency but need to be taken further
In the face of considerable spending pressures stemming from technological and demographic change, Germany needs to reform healthcare financing to make it efficient and limit the negative impact on employment and growth. The envisaged gradual increases in budget contributions to the social health insurance system will help reduce non-wage labour costs, if and when they materialise, as general taxes draw on a larger base than labour-income-dependent social insurance contributions which are the main financing source of the social health insurance system now. The government should reach an agreement on how to finance increasing budget contributions, soon, to avoid putting this important reform at risk.
Germany also needs to exploit untapped efficiency potential to limit spending increases to the degree which is necessary to ensure access to high-quality care for all. It has chosen enhanced competition as the main tool to reach this goal. The new financing system for the social health insurance system linked to an improved risk structure adjustment between insurers could reduce the incentives for risk selection and improve the chances for competition between insurers to lead to higher cost-effectiveness, but to avoid distortions some aspects of the design will have to be corrected before the system is introduced in 2009. The largest part of the system’s costs will continue to be financed by labour-income dependent contributions, protecting lower income earners, while the price signal will come from a surcharge that those insurers that otherwise cannot cover their costs will have to levy on their members. However, the surcharge will be both weak and distorted as it is limited to 1% of members’ income subject to contributions, reducing incentives to switch, in particular for lower income members. Moreover, the associated redistribution will be financed within surcharging insurers’ memberships, putting insurers with a large share of low income earners at a competitive disadvantage, because they will have to levy higher surcharges on higher income members. The government should consider making the surcharge flat, without limits in terms of its share of members’ incomes, while increasing its contributions to a larger share of the system’s total costs, to strengthen the price signal and decouple healthcare financing from labour costs a bit more. To the extent that additional subsidies for low-income earners would then be needed, they should be financed via general taxes to avoid distorting competition.
The current segmentation of the health insurance system will be maintained, raising equity and efficiency concerns. Private health insurance members are both healthier and wealthier on average than social insurance members and segmentation leads to less efficient risk pooling, leading to higher social contributions and ultimately to lower employment and economic growth with negative effects for society at large. In addition, it raises equity concerns to exempt private health insurance members from contributing to the financing of the various re-distributive tasks performed within the social insurance system, such as free co-insurance of family members without own income. Private health insurers should be included in the new financing system.
The government has also introduced greater freedom for insurers in their contractual relations with providers and pharmaceutical companies to allow them to distinguish themselves on the basis of their products and enhance competition in the insurance, provider and pharmaceutical markets. This is a logical move as the government aims at improving cost-effectiveness through enhanced competition. However, establishing competition in the healthcare system is a challenging task in view of numerous market failures, equity-efficiency trade-offs and consumers who do not pay directly. The government should monitor closely whether enhanced competition results in the desired outcomes and correct the rules of the game if necessary.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
Eine Druckversion des Policy Brief in deutsch (pdf Format) kann ebenfalls heruntergeladen werden. Es enthält die Gesamtbeurteilung und die Empfehlungen, aber nicht alle oben gezeigten Grafiken.
The complete edition of the Economic survey of Germany 2008 is available from:
For further information please contact the Germany Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by David Carey, Felix Hüfner and Nicola Brandt under the supervision of Andreas Wörgötter. Research assistance was provided by Margaret Morgan.