Special Report: German Government Health Insurance Reform 2007

German demographic changes mean that an increasing number of older people are and will be using the medical system; increasing the burden on budgets for both in- and out-patient services as well as for medication. In addition, progress in medical diagnostic methods, therapies and the expectation that every patient has right to any and all medical services has caused a large increase of cost. The fear is that the entire system is breaking down and the quality is deteriorating, making it possible to obtain good medical care only by paying as a private patient. Germany has a two-tiered system of both a government scheme (85% of the population belongs to this system) and private insurance providers.

Patients with private health insurance tend to subsidize the cost of the entire system as medical service providers charge a private patient more than a public one. Private health insurance also makes provision for keeping the premiums steady when the customer retires by putting money aside for the future (Altersrückstellung). The government system does not do this and distributes the monies which come in during the same year, a recipe for disaster if the first sentence in this article rings true. The obvious end results are higher costs for patients and/or lower benefits available to them, not to mention longer waiting periods for receiving medical care.

There appears to be a strong political desire on one side of the current government coalition, to develop an increasingly socialized medical system with centralized budgets financed by members, employers and the taxpayer in general. The present plan is to introduce a gigantic government "health fund" (Gesundheitsfonds) in 2009 into which all monies are to be paid; an administrative board will then distribute the same percentage amount per customer to each of the insurance funds (Krankenkassen). Until now the Krankenkassen have had a certain autonomy and have been allowed to set their rates (between 13% and 16%).

The Krankenkassen will in future still provide health services to their members and if they make a profit (until now not a necessity) will be allowed to give their members a small refund. If on the other hand, they spend too much and incur a loss, they will be allowed to charge their members an additional premium of maximum 1%. At the same time, the Krankenkassen members are given a cancellation right which will supposedly allow a degree of competition in the market. It is an odd way to "compete" as the individual Krankenkassen cannot pick and choose their members and have no way of stopping high risk customers whose medical condition costs a lot from joining or encouraging them to leave.

Due as much to the politics of jealousy as anything else, the government has come up with some interesting changes which will have an effect (whether or not beneficial) on everyone living in Germany. The name of this reform bill? GKV-Wettbewerbsstärkungsgesetz. This mouthful claims to increase competition, both between public schemes and between public and private health insurance companies. It should also improve the quality of medical care to the populace at large by changing encrusted structures. Some of the main points are described below and are based to a large extent on the releases from the German government health ministry. Further information is available in the German language on their official website: www.die-gesundheitsreform.de.

There will be compulsory health insurance for everyone living in Germany.

As of April 1, 2007 all members of the public scheme and as of July 1, 2007 all privately insured and insurable persons (employees earning more than the threshold amount, self-employed and other persons without insurance) MUST join either a public or private scheme. There are new and complicated rules on which schemes you can join and there is not much switching back and forth possible.

One major change is that all private insurance companies must offer a basic plan (Basistarif) and accept all privately insurable persons who want to reduce their coverage down to the public health scheme level and premiums. Until now a private insurance company would underwrite potential customers and have the option of refusing an application or to charge an additional loaded premium if there are pre-existing conditions. Insurance actuaries had a certain amount of power.

Even though German health insurance companies are profit-making businesses (compared to government health funds which are publicly funded and not-for-profit organizations), they are forced to return 80% of their profits to their insured customers by building reserves. Under these conditions there cannot be much motivation for either public or private health funds to offer a better service or to lower premiums as there will be a spread of risks no matter how efficiently they run their funds.

The new law requires everybody to have health insurance, either public or private. If you are presently uninsured and do not join or pay your premiums as of July 1, 2007 and become ill, you will not be entitled to more than basic medical attention for acute injury or major pain and will be then be required to pay the owed premiums retroactively together with a penalty fee. This is not a risk any sensible person should consider taking.

The changed law has provisions for some new benefits for members of the government scheme:

  1. Members will be able to choose between different tariffs which allow for some co-payments or bonus payments in return for a reduction of premium. This is new and each Krankenkasse can offer these to a select group of members only.
  2. Members will often be able to choose to be invoiced by doctors, dentists and hospitals (Kostenerstattung) instead of receiving the services by simply showing their membership card (Sachleistungsprinzip). This is a major change and means that medical practitioners will be able to invoice a government scheme member as if the patient were privately insured as long as this has been agreed upon with the Krankenkasse in advance. The logic behind this measure is to allow customers to benefit from extra cover, over and above that which the Krankenkassen would normally allow and either pay for the difference themselves or to use private supplemental tariffs to fill the gap.
  3. Benefits for recommended vaccinations, parent/child respite care, rehabilitation, geriatrics and palliative medicine will become obligatory and must be provided by each Krankenkasse.
  4. Home nursing care will be extended and will also become part of the long-term care system.
  5. Integrated medical facilities such as local medical centres, until now almost non-existent in Germany, will be supported and encouraged in order to save money and to improve the quality of diagnosis and therapy.

The 250 state sector health insurance funds (Krankenkassen) will no longer be protected by statute and will be able to compete or merge with the others if they need to in order to survive. Every Krankenkasse will receive the same level of premium per member from the new centralized health fund starting in 2009. The rates will be set by the government, no longer by the individual Krankenkasse. The premium rates set by the government will still be a percentage based on the employee's salary and/or on the income earned from other sources and will no longer vary depending on their membership of a Krankenkasse.

There are also major changes in store for the doctors within< the government health System (Kassenärzte). Many doctors with their own practice have complained bitterly and some have even gone on strike about the strict budgets stipulated by the Krankenkassen which seem to punish them for offering professional consultations or prescribing expensive medication. The entire invoicing system is to be reformed, the bureaucracy dismantled and the fairness of the system restored. Whether this really happens will however only become clear from 2009.

Hospitals in Germany have been under much pressure in the past few years and many have closed, merged or joined large private hospital chains in order to survive. They only receive a certain amount of money per case (DRG = Diagnostic Related Groups) and are no longer interested in keeping the patients in their hospital beds for longer than absolutely necessary as was the tradition in Germany in the past. The staff is always under time pressure, their activities are controlled more than ever before but facilities are being improved in order to compete. Hospitals will now be allowed to offer out-patient therapies for cancer and other serious illness.

A few unpleasant changes are also in store for the pharmacies. They will have to sell prescription medicines at the lower prices centrally negotiated by the Krankenkassen which means they earn lower margins. A new development will be that pills may be distributed in much smaller numbers compared to the current system, where the patient must take packaged amounts which may be much more than they really need.

It seems that the pharmaceutical companies are not going to be affected too much by the new law except that they will be forbidden to use information gained from prescription data for marketing purposes. There will be some controls on the prices charged for newly developed medications and patients will be required to get a second opinion before using expensive medications.

The Kassensystem is to be reformed drastically. It has been traditionally been managed regionally and each "fiefdom" could decide on rates and to a certain extent on services offered. This reform throws a monkey wrench into the system by abolishing the regions and forming one board or body to make the decisions for all government health scheme funds. Despite pious hopes that cost savings are possible, this appears to be a power play designed to negotiate the price of medical care from the different providers such as hospitals, doctors, pharmaceutical companies and other service caretakers such as therapists and spas and could lead to centralized medicine in its purest form.

One of the main and controversial effects of this reform is to force private health insurance companies to share the burden of the increased cost of the system by forcing them to also take undesirable customers. Private health insurers must offer a low-priced, government health scheme benefits level tariff called the Basistarif. In the relatively short time period between January 1 and June 30, 2009, anyone who is presently privately insured may change into this tariff as well as all those who are now voluntary members of the government scheme (i.e. those earning more than the threshold of 47,700 Euros per year).

The option to change from the government scheme into the private system is made even more difficult by adding a prerequisite that a member must continue at least a 3 calendar years membership of a Krankenkasse as a voluntary member despite earning more than the minimum threshold salary, before being allowed to switch. This is mainly aimed at Germans, who having enjoyed low rates at the outset, leave the government system immediately after they begin to earn more money in order to take advantage of better coverage for the same or perhaps even a lower price. This measure does have a major effect on those arriving in Germany to work here for the first time: in order to be able to choose private health insurance employees must show that they earned more than the equivalent of 47,700 Euros per year in the previous three years and must inform their employers that they prefer to be privately insured. If they take no action, they will automatically be registered with a Krankenkasse and must stay in the government scheme three years as a voluntary member before being able to switch to a private health insurance.

It is, of course, possible to add supplemental private health insurance during this period to top up the government scheme as the employee feels necessary or desirable.

Competition between private health insurance companies is to be fostered by allowing customers to cancel their present tariffs and to purchase a tariff from another private insurance company without great disadvantage, something which was almost unheard of in the past. The private insurance companies must make the accrued retirement savings portion of the premium (Altersrückstellung) portable. This special portability in the future will be limited to the equivalent amounts of accrued savings in the new Basistarif, any additional saved amounts will be retained by the original company

Important note for all insured persons presently insured with a German private health insurance company : There will be a limited time period between January 1 and June 30, 2009 for taking the accrual from your present tariff into the Basistarif. This means that your premium would be based on the entry age you had in the previous tariff. Nobody knows at this point how attractive this option may be and how many people will want to take advantage of it. In other words, if you think you are paying too much now and cannot afford to do so in the future and are willing to cut back your benefits to the level of the government scheme, you might be interested in investigating this. If you miss the deadline of June 30, 2009 you can change only if you are older than 55 or receive a pension or social welfare payments.

Important note for persons presently insured as voluntary members of a German Krankenkasse: You can change to the Basistarif of a private insurance company within 6 months of becoming a voluntary member (but only after 3 years of earning more than the threshold salary). This could be of interest if you would rather be considered a private patient and do not have dependents.

Important note for persons who were previously insured with a German private health insurance company and are no longer insured for whatever reason: You must become reinsured at the latest by 2009. Your previous insurance company must accept you in their Basistarif. There will be no health questions for underwriting purposes and no supplemental premium load will be allowed. You can apply for the insurance as of July 1, 2007.

Important note for persons who used to live in Germany, have moved away and now plan to return: These persons were often faced with a dilemma. Neither would a government scheme accept them if they were over a certain age, nor would a private health insurance plan have to accept their application if they had pre-existing conditions or were too old to apply. The present reform changes this. Everybody living in Germany must be insured and therefore starting on July 1, 2007, all private insurance companies must also insure persons returning to Germany. They can only purchase a tariff called the Standardtarif which will then be automatically carried over into the Basistarif by 2009.

The Basistarif will be the basket tariff for persons in ill health, older persons who are otherwise uninsurable, as well as for those who cannot afford the regular tariffs. The premium will simply be based on gender and age. Dependents will not be insured free of charge. In fact, those persons who cannot afford the premium will normally receive a 50% rebate if they can prove that their income is below a certain level. Those in the Basistarif will not truly be "private patients" in the sense of having a choice of benefits or doctors however and the level of benefits is not guaranteed as they are in normal tariffs. The association of private insurance companies claims that this could cause a major subsidizing of the Basistarif by the other insurance tariffs but one has to assume that this assertion is more political than business oriented.

The Quintessence

The wonderful terms used in the goals description of the new reform bill such as "simplify", "provide more choices", "increase transparency" and "competition" are well written but few believe that the core problem of financing the monstrous system have been addressed. There is no mention of reducing cost, only of spreading the cost risk differently and hoping that the government will subsidize a higher amount after 2008. Unfortunately, the more centralized medicine becomes, the more likely it is to bring higher health insurance premiums for the members and another tax increase is bound to be levied in the coming years. There is no way of avoiding these new developments if politicians continue to make decisions about a very complicated system they normally do not and cannot understand. The lobbies were strong, the polemic was very extreme, and the compromise equally shaky. In fact, it is unlikely that the reform mechanisms described can actually be put in place by 2009 and will be delayed or reviewed as soon as the next election has happened. The long term nursing care system is also being "reformed" which will undoubtedly mean that the cost will increase. You will no doubt be paying higher premiums in the near future even if you will never need nursing care unless you plan to retire in Germany.

But alas, the destiny of health insurance reforms is - there is always the next one just around the corner. In German "Nach dem Spiel ist vor dem Spiel" in Soccer, equates to Nach der Reform ist vor der Reform in the health insurance market.

This article is provided as a service for non-German speaking persons in Germany in order to explain some of the important changes which may affect them. It reflects the author's opinions and is in no way to be considered complete, accurate or binding.

Information provided by:
Cathy J. Matz-Townsend
International Insurance Broker
Kronberg, Germany
www.insure-invest.de

Copyright 2007. All information as per June 2007 - no guarantee for accuracy or completeness. Published with permission from author.