German health insurance plan attacked

The Financial Times ^ | 7/7/2010 | Gerrit Wiesmann in Berlin

[bruinbirdman]

German business and union representatives on Tuesday criticised the government’s plans to raise contributions to the country’s huge public health-insurance system, which provides generous cover for 70m people.

The plans, which were announced by Phillip Rösler, health minister, in Berlin, call for a rise in contributions from 14.9 per cent to 15.5 per cent of gross pay, equivalent to €6bn ($7.6bn).

Dieter Hundt, head of the employers’ federation, said raising contributions was “disappointing” as it broke a government promise not to touch non-wage labour costs.

State healthcare contributions are paid roughly equally by employers and workers, which means that about half the €6bn will have to be shouldered by companies just emerging from economic crisis.

Michael Sommer, head of the trade union umbrella organisation DGB, criticised plans to extend a system of emergency top-up payments that insurance companies can demand from workers, as “out of place” in an insurance system that was supposed to share the burden of health costs.

But Mr Rösler defended the potentially limitless top-up payments as “the beginning of a long-term conversion of the system” from one which traditionally burdened labour costs every time contributions rose.

Mr Rösler, a rising star in the Free Democrats, chancellor Angela Merkel’s junior coalition partner, had sought to introduce flat-rate insurance premiums in order to stir competition among some 200 public health insurers.

But a month ago his plan was dismissed by the Christian Social Union, the Bavarian wing of Ms Merkel’s conservative Christian Democrats, leading to a bitter row and calling any healthcare changes into question.

Politicians privately admit the ructions about healthcare reform spilt over into last week’s election by lawmakers of the new German president, in which Ms Merkel’s ally Christian Wulff only narrowly became head of state.

This near-disaster and projections that public health insurance providers were heading for a funding-shortfall of €11bn next year, seemed to galvanise Ms Merkel’s fractious government to finally come together.

Coalition grandees drew up what seems to be a classic compromise: the old contributions system, defended by the Bavarians, combined with bits of an employee-funded flat fee, championed by Mr Rösler.

Alongside the rise in healthcare contributions, Berlin will allow health insurance providers to demand unlimited top-up fees from clients to cover looming deficits. These are currently capped at 1 per cent of wages.

Mr Rösler said needy policyholders paying more than 2 per cent of wages in top-up fees would get government assistance, a policy that could cost Berlin an extra €1bn per year after 2014 without more changes.

Although the health minister has already got pharmaceutical companies, hospitals and doctors to commit to €4bn in savings next year, Mr Rösler said cuts would have to “go much further” in the years beyond to shore up the system.

There was nonetheless palpable relief the government was able to demonstrate its resolve. Volker Kauder, head of the conservatives in parliament, said he was happy health reform had been “cleared away” before the summer break.