September 30, 2009

Health Care in Other Countries: Germany

New York Times "Prescriptions":

Uwe E. Reinhardt is a professor of health economics at Princeton University and a former president of the Association of Health Services Research. He is also a member of the Institute of Medicine of the National Academy of Sciences, a board member of the Journal of the American Medical Association and a contributor to The Times’s Economix blog. His research has compared health care in the United States to that in other countries, including his native Germany. He spoke with freelance writer Anne Underwood.

  • Life expectancy: 80 years (USA: 78)
  • Infant mortality: 4 per 1,000 live births (7)
  • Health spending as a percentage of GDP: 10 (15)
  • Percentage of health spending that is private: 23 (54)
  • Doctors per 10,000 people: 34 (26)
Source: World Health Organization.

Q. Is it true that the concept of health insurance originated in Germany in the 1880s?

A. During the Industrial Revolution, workers who got sick didn’t earn money, so they formed what they called “friendly societies.” These were cooperatives into which workers paid monthly premiums, pooling their resources so they could continue the cash wages of workers who got sick. Those cooperatives became what are now called “sickness funds” in Germany.

Around the same time, Karl Marx and Friedrich Engels were stirring up the masses with their tracts, including “The Communist Manifesto.” To Otto von Bismarck, the so-called Iron Chancellor of Germany, it seemed that the only way to stop the growth of communism was to take the wind out of its sails by giving low-income people the things they craved — health care, education and a social safety net in general. So in 1883, he passed the Imperial Insurance Order — in German, the Reichsversicherungsverordnung, or R.V.O. — which made it mandatory that all workers up to a certain income threshold pay premiums to such sickness funds. The R.V.O. still governs German health care, although it’s had a thousand amendments in the meantime.

During World War II, Hitler exported the system to the Netherlands, Belgium and France. It’s now generally called the Bismarck Model, to distinguish it from other forms of social health insurance, such as the British National Health Service. The Bismarck model was so popular that after the war, even though it came from Hitler, these countries kept it.

Q. So Bismarck’s system was the world’s first real insurance system?

A. It was the first formal social health insurance system, yes — the first government-regulated system. I believe it is still the best model there is, because it blends a private health-care delivery system with universal coverage and social solidarity. The financing is simple. It’s inexpensive and equitable. Coverage is portable. You’re never uninsured in Germany. No family goes broke over health care bills.

Q. This is based in the workplace. Does it amount to an employer mandate?

A. Not exactly. Formally, employers pay half of the premium and workers pay the other half — although economists would argue that the premium is entirely taken out of the workers’ take-home pay. But the mandate to be insured is really on the individual. Each worker chooses a sickness fund.

In the United States, employers have a larger role. Employers pick the menu of health insurers from which employees can choose. German employees would take umbrage at that.

Q. How large is the choice of funds?

A. The sickness funds were originally organized by craft or company or locality. Until 1992, you had no choice. If you were a carpenter, you belonged to the carpenters’ fund. But since 1992, people have been able to choose any of some 200 sickness funds.

Q. What if you’re unemployed?

A. Unemployment insurance continues your premiums. If you’re poor, the community pays. If you’re retired, the pension fund pays. Children remain in the sickness fund with their parents, but the premium is paid by the federal government.

Q. Does it achieve universal coverage?

A. 100 percent.

Q. What about illegal immigrants, who are the subject of so much debate in this country?

A. Once you’re in the country, you have rights to all social services.

Q. Are the sickness funds run as for-profit businesses or nonprofit?

A. They’re all nonprofit companies. There is a separate for-profit industry to which you can belong if your income is above 45,000 euros [about $65,000]. If you’re 33 years old and have a high income, your premium in the private plan is much lower. However, premiums increase with age. And if your income declines, you could be in dire straits. Since 1992, individuals with an income above the threshold who choose to buy private insurance cannot get back into the social insurance system unless they fall below the poverty line. This makes people hesitant to leave the social insurance system.

Q. Is there competition between private and public plans?

A. Yes, there is, but 90 percent of people are in the public plans. There is competition among the sickness funds, too, now that people can choose.

Q. Many Americans are concerned that if we offer a public option, it will ultimately put private insurers out of business. What does the German experience tell us?

A. About 10 percent of the population is in for-profit plans, but most people who are entitled to choose such a plan don’t. It’s the same in this country with Medicare. Eighty percent stay in the traditional Medicare plan rather than choosing the private Medicare Advantage. Although the American people appear unaware of it, government is the only institution they really trust deep down.

Q. That’s not what we heard over the summer in the town halls.

A. It’s utterly ridiculous to say they don’t trust the government. Where do Americans turn for help when they get into trouble? Do they run to the private sector? Even big bankers run to Washington. With a public plan, you would get something like Medicare. Just try taking Medicare away from the elderly. In the decades I have lived here, I have discovered this about America’s legendary rugged individualists: when the going gets rough, the rough run to the government.

Q. Has competition between public and private plans in Germany made the system more efficient?

A. Competition in health care typically doesn’t make things more efficient. But the German system is more efficient than the U.S. system for other reasons. In Germany, the plans do not individually negotiate prices with individual doctors and hospitals. Instead representatives of each state (or Land) sit across the table from associations of doctors and hospitals and hash out uniform fees that every plan in that state will pay. They don’t waste a huge amount of resources by having each plan negotiate separately with every hospital and doctor.

Q. Are administrative costs lower?

A. Much lower. I don’t have the exact figure, but it’s about half of what we spend. All billing is done electronically. You have a card, like an American Express card, that you take with you to the doctor. The physician codes in what he did for you, swipes the card, and in two weeks he gets a check. There is no haggling over bills. The patient usually pays a small co-pay. It’s 10 euros or so for the first visit in a quarter. After that, you pay nothing else for the rest of the quarter. It’s trivial.

Q. How much government control is there?

A. The R.V.O. regulates the sickness funds to the point that they’re essentially uniform. But German hospitals probably have less regulation on them than U.S. hospitals. In the United States, there are multiple layers of regulators each imposing restrictions. The Medicare payment system alone is forbidding with all of its regulations.

Q. Are drug prices regulated?

A. No. In principle, drug makers are free to price their products for the market. But the sickness funds group drugs into therapeutic groups. Patients have a choice between taking a low-cost drug for which they are fully reimbursed, or paying the difference between the low-cost drug and a higher-priced one in the same category. The system is called “reference pricing,” and it is much hated by drug manufacturers around the world — even though it’s a market system relying on the decisions of patients themselves. Isn’t that what the so-called “consumer directed health care” now being pushed in the U.S. is all about?

Of course, when patients can’t evaluate the different drugs, they tend to stick with the low-cost drugs. Apparently it happens often, because expenditures on drugs are much lower in Germany than the United States.

Q. Are there long waits for service in Germany?

A. No, basically none.

Q. How does Germany do at controlling costs?

A. They’re half as expensive as we are on a per capita basis, even though a much higher percentage of the German population is over age 65. Still, Germans lament that growth in medical spending is a problem. I say if we had problems like that, we would drink champagne.

Q. What’s your biggest criticism of the system?

A. Every system has its weaknesses. I think, for example, lots of care [is] given in Germany — as it is elsewhere — for which we don’t actually know the effectiveness compared to other treatments. There is overutilization of the system. Also, the German system is a bit rigid in its structure, which makes innovation in organizing health care more difficult than it is here.

Q. Is there medical bankruptcy in Germany?

A. That’s almost impossible. Germany’s benefit package is very broad and deep. If Germans were to go bankrupt on medical bills, it would be from purchasing drugs or services not in that broad benefit package. But I have not ever read of Germans going bankrupt over health care.

Q. What is the most important lesson Americans should learn from the German system?

A. The K.I.S.S. principle — which stands for “Keep It Simple, Stupid.” If you can do something in a complicated way, trust Americans to discover it — certainly in health care. I was on the phone this morning with a hospital and insurer that were suing each other because the patient had gone to a hospital that was not in the insurer’s network. The hospital was charging the insurer two to three times the negotiated rate the insurer pays for in-network hospitals. Only lawyers can love this system. And it is a safe bet that whatever President Obama and the Congress comes out with this year will be so complicated, no one but a few consultants will understand it — and many of those consultants will be the Hill staffers who wrote the reform law. By comparison, the German system is very simple. Every German knows what health care costs his or her family.