German Healthcare: Cash-strapped and in Need of Reform

Germany's previous healthcare system reform laws have had some pretty impressive names – the "New Reorganization and Solidarity Law" or the "Premium Relief Law," for example. But no measure has prevented costs and premium rates in the national health fund from skyrocketing.

Since 1977, premium rates in Germany have risen from about 11 percent of a person's gross salary to, in some cases, more than 14 percent today. In addition, patients these days are required to dig deeper into their pockets to pay for medication and hospital expenses not covered by their insurance. In total, they are forced to pony up more than €13 billion ($14 billion) a year for extras.

"Either we let these developments continue, in which case the only thing left will be reductions in healthcare services, or we ration medical care based on age," German Chancellor Gerhard Schröder recently warned, "Or we can decide on reforms that will make our good health financially viable for everyone."

A push to cut costs

Federal Health Minister Ulla Schmidt is currently pushing to stem expenditures and costs in public health funds. This year, for example, she ordered doctors to put a freeze on any increases in fees. Additionally, in order to reduce the system's mountain of debt, Schmidt also ordered doctors to prescribe generic drugs rather than brand names whenever possible and demanded bigger discounts from pharmacies and the pharmaceutical industry for bulk purchases made with public health funds.

The health minister has also placed the powerful medical lobbying industry in her sights. Contracts determining pay for doctors and services in Germany are currently negotiated with the government by the state-level Krankenärtzlichen Vereinigungen, the associations representing doctors in the public health system.

"Our health care policies have a clear concept: quality, transparency and prevention – not two-class medicine or resignation to all the lobbying groups who walk around outside foreswearing the end of the world," Schmidt recently said. "For that reason, we're going to stick with these reforms. We want quality. The reforms will come and will be the most important contribution to ensuring that health care is affordable for everyone."

Sharing the pain

Schmidt is calling for everyone to participate in the health system reforms: doctors, hospitals, the pharmaceutical industry, pharmacies and patients. With rising health system costs, non-wage labor costs, too, are expected to dramatically increase.

For the most part, Chancellor Schröder has supported Schmidt's call for reforms. He's also campaigning for better quality, increased competition and more price-conscious conduct in the medical industry. Schröder has also stated that Germans should expect increases in their health care premiums as well as a greater deductible for prescriptions. The government may also seek other financing possibilities for the money paid to patients to reimburse them for lost workdays if they are sick for longer than six weeks.

25 years of failed reform initiatives

This is far from the first time a German government has undertaken a serious reform effort – previous governments sought to achieve the same goal for 25 years. They all failed, and year after year costs have continued to increase as medical industry lobbyists have derailed any effort to cut costs. With total industry revenues of €250 billion, that's little surprise – everyone wants a piece of the pie. But with an aging population, staggering unemployment and fewer people to pump money into the coffers of the social insurance system, many in the government say cuts are imperative.

But experts as well as opposition politicians fear the current reforms won't be enough to turn the deeply indebted system around. They fear that the public health system is going to remain a problem for some time to come. Many point out the fact that the public health fund had a budget shortfall of €3 billion in 2002.

For its part, the Social Democratic Party and its junior coalition partner in the federal government, the Green Party, is preparing a draft reform law based on the recently completed work of the Rürup Commission. The 26-member panel, led by leading German economist Bert Rürup (photo), was convened to help resuscitate the country's entire social services system, which has been choking under the weight of massive deficits in many areas. Schmidt is expected to unveil a draft of the bill in several weeks.