CIAO DATE: 11/04

Health Care in Germany

Christa Altenstetter

Occasional Paper Series No. 49

January 10 through May 16, 2002

European Union Studies Center

1. Introduction  [1]

The question of whether the introduction of competition and managed care in the German health care system means a "new paradigm" or simply a "stalemated strategy" was raised in a 1999 issue of Health Affairs by Lawrence Brown and Volker F. Amelung (1999). In that same issue, Uwe E. Reinhard (1999) responded with a question of his own: "Why would Germany wish to emulate the US style of managed care, with its as yet unproven effect on quality and outcomes?" The core of their disagreement seems to center around two issues. First, can competition and managed care flourish in a political culture and healthcare system where central policy-making and enforcement arrangements are embedded? The distinct political economy and history of Germany may create conditions that are not conducive to competition and managed care, unlike the US. The second issue that leads to the different interpretations above is the elusive concept of quality in health care, especially how to measure and achieve it.

The historical record is clear on the first issue, at least as it has been treated in the past. At critical junctures of Germany's history—1918, post-1945 in former West Germany, and at reunification in 1990—successive generations of politicians from federal and regional governments and public administration have judged that the political price for dismantling self-governance was too high. (That is, except for Hitler's government, which is the only regime that touched on the management of self-governance structures by subjecting all social insurance carriers, including health insurance, to central control in Berlin, although SHI remained in place.) Will today's elected politicians take the risk of fundamentally restructuring self-governance, a prerequisite for genuine competition? The record on quality of health care and quality assurance in medical services is more ambivalent, despite frequent invocations of the need for high quality care by German politicians and experts alike. Yet Germany is not alone in its demands for higher quality, and finds herself in good company with the United States (Shine 2002) in a need for improvement, as reflected in the ratings of both countries by the Institute of Medicine, the Organization for Economic Cooperation and Development (OECD), and the World Health Organization. Yet rather than pursue a task which even quality experts have not mastered, let us limit the discussion to the macro-policy and macro-structures of policy-making in Germany.

This paper first updates policy developments since the publication of this debate in 1999 before briefly returning to the questions raised by the authors at the end.[2] Statutory healthcare insurance (SHI) will be examined, including benefits, organization, financing, major flows of funding, compensation of providers, and resource allocation. Then, SHI will be contrasted to long-term care insurance (LTCI). Mental health services and the Public Health Service will be surveyed only briefly. Finally, a few implications will be drawn from the policy and institutional context of SHI and LTCI, and likely future scenarios for political action be suggested.

Brown and Amelung (1999, p. 86) define managed competition as “arrangements in which purchasers (public and private) contract with payers who seek to win business and market share by offering incentives for providers to manage care.”Ê Managed care is defined as “organizational or contractual arrangements in which those who purchase and pay for medical care use financial incentives, administrative controls, or both to hold providers… accountable for the quality and costs of their treatment decisions”. For Reinhard, managed care ultimately involves exercising control over (1) the volume of goods and services going into medical treatments, (2) the production cost of these treatments, (3) the money transfers made to the providers of these treatments (prices), and (4) these treatments' impact on their recipients' quality of life. One might even include (5) the impact that the entire health care system makes on the quality of life of the population. (1999, p. 92)

Since Reinhard's and Brown and Amelung’s views were published in 1999, a new Social Democratic/Green legislative coalition continues to travel on the competition track, on some dimensions even more so than the Right government in 1993. The current government enacted Health Care Reform 2000, which introduced new or strengthened existing “competitive elements” in SHI, LTCI, and the health care system at large. Through the introduction of a nationwide system of Diagnosis-Related Groups (DRGs) in all German hospitals by 2007, the idea of competition was substantially expanded in the hospital sector, building on earlier partial DRGs introduced in 1996. In the reformers' view, the allocation of resources should follow patients, who can receive inpatient services ranging from standard to sophisticated ones depending on the capacities of individual hospitals. But at no point has it been politically feasible to dispense with self-governance.

The federal minister of health and the advisory council in health care (Sachverständigen-rat im Gesundheitswesen) also declared a Qualitäts-offensive, a war on behalf of “quality, transparency and economy” (Federal Ministry of Health, 2001e). This mandate is not new, but renews the need for quality assurance, disease management and quality management in all care sectors. In addition, it calls for improving existing risk adjustment mechanisms across all SHI carriers by establishing a genuinely nationwide pool of high-risk patients across all population groups, delivery sites and funding sectors. It also calls for more action on behalf of the chronically ill and the mentally handicapped. These are laudable goals, but the real issue is the gap between rhetoric and what happens on the ground. The problem is compounded when the same groups that call for transparency and quality have been, in the context of statutory health insurance (SHI), cool (if not hostile) to the idea of sharing cost, utilization and other data with patients; opposition does not come exclusively from providers, as is generally assumed.

Since the changeover from the conservative Kohl government to Gerhard Schröder's coalition government in 1998, the advisory council was regrouped. But some continuity has been preserved, as a few members who served during the Kohl era are on the current council.[3] Building on previous reports (notably 1995,1996, 1997), the latest report[4] hardly differs in tenor or substance from its predecessors, although language may differ, a few goals and solutions are reinterpreted and preferences are strengthened. The explicit empowerment of patients may be considered new.

Two years ago, the council was explicitly asked by the minister of health for possible improvements in the steering capability of health care through quality assurance and new and different forms of reimbursement, while leaving untouched SHI funding and self-governance. The council came up with a number of instruments: quality, transparency and risk pooling; setting health goals; developing morbidity-related criteria; strengthening prevention and health promotion; and empowering patients. The general practitioner or family doctor was recommended to be upgraded to a gatekeeper of access to specialists, yet at the same time a facilitator for interfacing with the four health care sectors: inpatient medicine, outpatient medicine, inpatient and outpatient rehabilitative services, and nursing care at home.

Politicians, a new roundtable of the major stakeholders, and expert reports published in 2001 have repeatedly insisted that a balance between competitive elements and equity and fairness in access to medical, dental, hospital, long-term nursing, and mental health care must be maintained. A few of the more excessive cost-sharing elements enacted by the Right government were scaled back because they were considered inequitable, unjust and politically untenable. However, cost-sharing by patients, which was unacceptable to the Left for a long time, is now one element of reform among others.

When long-term care insurance (LTCI) was enacted in 1994, the federal legislature preferred the institutional arrangements of self-governance over tax-funding as an appropriate steering tool. In other words, “cozy, cartel-type arrangements” (Brown and Amelung 1999, p. 82) are embraced not only by providers and payers but also for the implementation of LTCI by state offices in the regions and municipalities. Arrangements that allow for non-competitive remedies and behavior tend to be the rule rather than the exception in the major care sectors.

Chancellor Schröder, in light of the forthcoming federal election in September of this year, has urged his minister of health throughout 2001 to prevent SHI-related and other health issues from becoming hotly contested campaign issues. Yet the financing of SHI and nursing care—which experts consider a time bomb in view of an aging population and changing patterns of morbidity—is already a campaign issue. Edmund Stoiber, the nominated chancellor candidate of the opposition (Christian Democratic Union/Christian Social Union, or CDU/CSU) wasted no time in pursuing the issue; the day after he was nominated he announced that, if elected, the Christian Democrats would pursue alternative policies in health, education and unemployment.

If the CDU/CSU coalition is elected, one can expect patient cost-sharing to be raised back to pre-1998 levels. Some services may be eliminated from reimbursable SHI-services and transferred to tax-funding,[5] and currently reimbursable but ineffective medical and surgical procedures will entirely be eliminated. However, campaign rhetoric should not be confused with what is politically feasible vis-à-vis the electorate. All participants in the electoral-political process know that any attack on solidarity and self-governance—real or perceived—is a high-risk political strategy, and that solutions need to be found which built around them. Yet the interplay of solidarity and self-governance tend to be inherently at odds with competition and an entrepreneurial style.

A policy of increasing access to health security is coherent for a period of the past 125 years, although the same cannot be said about policies for the major components of the health delivery system (e.g., the inpatient and outpatient sectors). Starting from 10% of the population in 1883 (the lower paid segments of the labor force), coverage was gradually extended by including more occupational groups in the plan and steadily raising the insurance program's income ceiling, which required those earning less to participate. In 1901, transport and office workers came to be covered by SHI, followed in 1911 by agricultural and forestry workers and domestic servants, and in 1914 by civil servants. Coverage was extended to the unemployed in 1918, to seamen in 1927, and to all dependents in the 1930s. In 1941 legislation was passed that allowed workers whose incomes had risen above the ceiling for compulsory membership to continue their coverage on a voluntary basis. The same year, coverage was extended to all retired Germans. Salespeople came under the plan in 1966, self-employed agricultural workers in 1972, and students and the disabled in 1975.

From the beginning, access to health security and, by extension, medical services was embedded in the value of solidarity. Solidarity is a concept with multi-faceted meanings today, but generally the idea means that the financing of health care includes both rich and poor, the working and the retired, young and old, singles and families. Since reunification, another dimension of solidarity was added; annual transfer payments within SHI from the rich sickness funds in former West Germany to the new sickness funds in the former East Germany were institutionalized. Even the risk adjustment mechanism (Risikostrukturausgleich, or RSA) has been used primarily so far to subsidize sickness funds in former East Germany and help them stabilize their finances. (A genuine risk adjustment mechanism across Germany based on a pooling of high risks is not yet operational, but is planned to be completed by the year 2007.) In the hospital sector, about 360 Billion € are annually transferred from the rich German regions in the West to the poorer regions in the East. Unequal treatment of providers, sickness funds and individuals in the two former parts of Germany had been accepted; yet starting on January 1, 2002, are providers will be treated equally. Is this evidence of competition at work? If it truly were, the East German sickness funds would all have declared bankruptcy already.

2. Statutory Health Insurance (SHI)

Unlike many of the world's advanced countries, Germany does not provide its citizens with health care through a state-run system. Rather, it provides these benefits via a complex network of independent regional and local entities, some public, some quasi-public, and some private. Many of these structures date from the nineteenth century, and some from even earlier. Because of a highly fragmented decision-making system spread across federal and regional levels, no single group can dictate the terms of service delivery, financing, reimbursement, quality of care, or organization.

According to the Basic Law of 1949,[6] Germany’s constitution, the federal government has exclusive authority in matters related to SHI and long-term care, mental health, and public health.[7] The federal government’s authority applies in particular to defining benefits, eligibility, membership, covered risks (physical, emotional, mental, curative, and preventive), income maintenance during temporary illness, and the percentage of payroll taxes levied on employers and employees. However, except for the financing of hospitals, which is the domain of the Länder, and some public health functions administered by the Länder and local and district public health departments, the responsibility for administering and providing healthcare has been delegated to non-state entities. These entities include national and regional associations of providers and sickness funds, Land hospital associations, private insurance companies, voluntary and public agencies, and nursing care funds. Table 1 summarizes the locus of decision-making on coverage, reimbursement and financing decisions.

Table 1: Forms of Decentralization in German Health Care

Providers	Coverage Decisions	Reimbursement Decisions	Financing Decisions
Primary and specialist care in doctors’ offices	Self-regulatory (corporatist) actors	Self-regulatory (corporate) actors on federal levels	Despite delegation to federal self-regulatory actors, the federal minister of health has assumed more decision-making authority than during previous decades
Inpatient care	In the past, coverage and financing decisions were indistinguishable; since 2000, federal actors play a key role	Reimbursement and financing decisions partially began to be differentiated in 1996; starting in 2003, these decisions will be made by federal actors (corporate and state)	Investment financing by the Länder; operating costs often carried by municipal actors (private; public and non-profit); in the future, centralization up to the federal and regional levels
Dental care	Self-regulatory (corporatist) federal actors		A good deal of delegation to regional (corporate) actors
Pharmaceuticals	Mix of government regulation and self-regulation by federal actors		Delegation of Reference price and regional spending cap setting (but ex-factory prices=pharmacy surcharges=legally regulated)
Public health services			“Undevolved devolution” to the Länder; further deconcentration in some regions

Source: Busse 2000b, p.31; updated by author.

Today, Germany’s health care system provides its residents with nearly universal access to comprehensive, high-quality medical care, including their choice of physicians, dentists, hospitals, and long-term nursing care. The portability of coverage, eligibility, and benefits cannot be reinterpreted by insurers, politicians, administrators, and health care providers. Universal coverage is portable across all German regions and must be honored by any medical office or hospital. Check-ins at doctor’s offices, hospitals, and specialized facilities are simple, with a chip card serving as membership identification. Prior to the latest reforms in the 1990s, no one in need of care could be turned away without violating medical ethics codes or Land hospital laws.

About 92% of the population receives health care through SHI. Individuals who are not insured through SHI, mostly civil servants and the self-employed (about 7.1 million in 2001) carry commercial insurance offered by about 50 private health insurance companies. (An estimated 0.3 percent have no insurance of any kind.) However, everyone uses the same health care facilities, although some 7-10% of SHI members have opted to carry commercial insurance for “luxury” hospital accommodation and treatment by a chief physician. The bulk of those covered by SHI are working individuals and their spouses and children, the retired or unemployed, and students, whether at community colleges, senior colleges or universities. In principle, children are covered until age 18; this age limit is raised to 23 if the child does not work and to 25 for students. Under certain conditions, the age limit for disabled children can be waived. A breakdown of members in SHI is shown in Table 2.

Table 2: Membership in SHI (July 2000)*

Status	Old Länder	New Länder
Compulsory members(without retired)	23,345	5,641
Retired	11,853	3,453
Voluntary members	5,868	693
Spouses and dependents	17,835	2,649
Total	58,901	12,436

*Numbers in thousands.
Source: Federal Ministry of health, 2001c, p.14.

SHI is based on a two-tiered system of sickness funds. The first tier is comprised of six types of primary funds, while the second-tier includes so-called substitute funds. Together, they make up what is known as Gesetzliche Krankenversicherung (GKV). In 2001, individuals could be a member of any one of these funds:

• 17 general regional funds known as Allgemeine Ortskrankenkassen (AOK), with one federal association in Bonn

• 12 substitute funds (Ersatzkassen) [Main office: Siegburg]

• 318 company-based funds (Betriebskrankenkassen) [Main office: Essen ]

• 28 guild funds or Innungskrankenkassen (IKK) [Main office: Bergisch-Gladbach ]

• 5 farmers’ funds or Landwirtschaftliche Krankenkassen (LKK) [Main office: Kassel]

• 1 miners’ fund (Bundesknappschaft) [Main office: Bochum]

• 1 sailors’ fund or See-Krankenkasse [Main office: Hamburg] [8]

The basic structure of these types of funds reveals a high degree of continuity since the last quarter of the 19th century. However, the actual number has changed dramatically over time, as illustrated in Table 3. A process of consolidation started around the turn of the last century, and accelerated dramatically for two reasons: first, German reunification in 1990 and, second, hectic and frequent reform legislation in the 1990s.

Table 3: Number of Sickness Funds, 1993-2001

Type of Fund	1993	1994	1995	1996	1997	1998	1999	2000*	2001*
AOKs	269	235	92	29	18	18	17	17	17
BKKs	744	719	690	532	457	386	359	337	318
IKKs	169	160	140	53	43	43	42	32	28
All other funds	39	39	38	37	36	35	35	20	19
Total	1221	1152	960	642	554	482	453	420	396

Source: Busse, 2000a, p.27, quoting Federal Ministry of Health, except:
*Updated for 2000-2001 from Federal Ministry of Health, 2001a, p.342.

A choice of sickness funds was not always possible for members of SHI; instead, membership was determined by occupational status reflecting the stratification of German society into different classes and social segments from 1883/85 through 1993. Since the late 1990s individuals have changed funds, at first reluctantly; then younger individuals discovered the incentives provided by lower payroll taxes of enterprise funds. The bulk of changes in membership occurred from the general sickness funds (with the highest number of the elderly) to the enterprise funds.

German policymakers have been reluctant to legislate rationing. As a result of reforming the financing of health services, today there is "soft" evidence that some form of “rationing” is happening as physicians refuse treatment for services for which they are not reimbursed, refer patients to inpatient care, postpone treatment, or refuse to do certain tests. The so-called IGEL[9] services made it legal for physicians to bill extra if patients wished to receive services not covered by SHI; for example, mammography is no longer covered and used to cost about 41€. Vaccinations are no longer free. A recent analysis of German hospitals, prior to the introduction of DRGs, report that hospitals refuse or delay treatment when high costs are predictable, refuse to admit emergency patients, discharge patients early only to readmit them later, engage in surgery which is economically worthwhile but medically useless, and transfer patients to the ICU or to another hospital in order to economize (Simon 2001, pp.19-21). Still, the author of this analysis is careful to stress that his findings are not necessarily representative of all hospitals in Germany.

Observers of international health policy have come to use the term benefits catalogue (as, for reasons of simplicity, this paper does as well); in actuality, this “catalogue” does not denote a refined list and is not comparable to the benefits section of private health insurance. Instead, the concept refers to a composite of different criteria and professional assessments written into law. All decisions on benefits/services under SHI must meet criteria spelled out in the social code (SGB V). Specifically, they must meet the following criteria (Krimmel, 1998, p.20): quality and efficacy as defined by the state of medical know-how (§2, section 1); medical progress (§2, section 1); sufficiency, efficacy and economy, without exceeding what is medically necessary (§12, section 1; §70, section 1); and must be sufficient and efficacious, according to medical practice and knowledge (§28, section 1).

2.1. Benefits

Despite the introduction of co-payments on a large scale in the 1990s, benefits under SHI remain comprehensive. The almost universal access to quality care includes the following:

• Any type of medical services delivered by an office-based physician

• Choice of physicians and specialists in the office-sector

• Choice of sickness fund (since the mid-1990s)[10]

• Unlimited hospital care, subject to an annual limit of a co-payment for 14 days per year regardless of repeat admissions

• Full salary for mothers from six weeks before childbirth to eight weeks afterward, including neonatal care of mother and child

• Home help

• Preventive health checkups (though these have been scaled back)

• Sick leave to care for a relative

• Rehabilitation and physical therapy

• Aids to treatment of all sorts, and patient-assisting medical devices

• Prescription drugs

• Stays in spas (under certain circumstances)

Prevention and early detection benefits include:

• Vaccinations (not for leisure trips abroad)

• Check-ups after the age of 35 years

• Early screening and detection program for babies and toddlers (nine visits from birth to age six, with one additional check up at the beginning of adolescence)

• one cancer screening per year for women starting at age 20 and men at 45

• dental prevention (reestablished after the Kohl government eliminated it)

• pregnancy and neo-natal and post-natal care (physician or midwife); each woman is given a card (serving as passport), which outlines a schedule for ten visits and includes the results of each visit

Other benefits include eyeglasses, for which sickness funds pay an amount fixed at the regional level. While they generally do not pay for frames, a sickness fund will pay at least 9.5% for the frame if new glasses are needed because of changed vision. Children up to age 14 are exempt from a co-payment for new eyeglasses. Finally, benefits also include a cash payment designed to serve as supplement to funeral costs.[11]

A needs-based Sozialklausel, or social clause, has been institutionalized for some time to ensure that no resident is refused medical and other health services because of lack of financial resources. SHI distinguishes between partial and comprehensive social clauses. The partial social clause covers children under the age of 18, who do not pay any co-payments. It also covers individuals and families according to this formula: individuals with a monthly income of less than DM 1,792 DM (single), DM 2,464 (couple) or DM 2,912 (family with one child). For each additional child, another DM 448 is added to the limit.[12] This formula is reviewed annually. The income ceiling for prescription drugs and medical supplies is higher. The comprehensive social clause is applied, irrespective of income, when an individual is a recipient of social welfare or receives aid to unemployment; it applies to veterans, the disabled, or persons in training (Bundesausbildungsförderungsgesetz). The comprehensive clause also covers disabled persons in home agencies or nursing homes and chronically ill individuals.

For dental care, co-payments are waived for those whose means-tested income is within the needs-based social clause. However, for those beyond the reach of the social clause, there is no parity of coverage between medical and dental care. Dental surgery is covered, but other necessary dental services require a sliding scale of co-payments. Typically, a sickness fund covers up to 50% of treatment costs; if an individual goes for regular dental check-ups, the percentage can be raised to 60-65%.

Employers must pay the salary of ill individuals in full for the first six weeks; thereafter the sickness funds pay 70% of annual salary up to the income ceiling, but not more than 90% of the last net wage or salary. The maximum wage per day in January 2002 is 112€ the maximum sick pay is 78.75€. Payments during illness are limited to 78 weeks within a three-year period. If a child under twelve years of age requires care, a working parent can receive financial aid for ten work days per year for each ill child; single parents are entitled to a maximum of 20 days. If several children are sick, aid can be paid up to 20 days for a parent and up to 50 days for a single parent per year.

Co-payments were introduced for the first time on a large scale beginning in 1982 for prescription drugs, dental treatment, hospitalization and other services. Successive legislation on healthcare reform in the 1990s has raised the amount of existing co-payments while instituting new ones. Co-payments are now solidly part of the German system; still, they are modest by international standards, as indicated by Table 4. However, they are also steadily increasing, as Table 5 demonstrates. Chronically ill individuals are granted a waiver for co-payments provided they have paid one percent of annual gross-income for prescription drugs, transportation and medical supplies and non-medical treatments (Verband-and Heilmittel). The waiver is given only to the individual patient, and not the family. For all other members of SHI, a burden of 2% of annual gross income is accepted as the rule (Überforderungsklausel, or excessive demand clause).

Table 4: Co-payments in Euro (January 1, 2002) in Germany

Prescription drugs	4, 4.5 or 5€, depending on the size of the package
Medical supplies, bandages	4€ per type of supply or bandage
Aids to treatment (Heilmittel*) e.g. massages, therapeutic baths, physical therapy, speech therapy, other therapies	15% of costs reimbursed by sickness fund (no change)
Transportation (e.g. ambulance)	13€
Aids to compensate for a handicap (Hilfsmittel*) e.g. bandages, orthotics, hearing aids, intersections, eyeglasses	20% of costs reimbursed by sickness funds (no change)
Dental services	50% of costs without bonus reimbursed by funds 40% of costs with bonus 35% of costs subject to proof of continuous dental care
Hospital services	9€ per hospital day (up to a maximum of 14 days per year)
Rehabilitation for mothers	9€ per day
Rehabilitation after acute illness	9€ per day (up to a maximum of 14 days per year)
Preventive hospital and rehabilitation	9€ per day (up to a maximum of 14 days per year)
Physical therapy	8€ (depending on individual sickness fund)

*These are legal categories as defined in SGB V.

Sources: BMG, VDAK, as printed in KKH Nachrichten 2002, p. 21, and http://www.bmgesundheit.de/presse/ 2001/2001/141.htm. Costs converted from DM by the author (1 € = DM 1,95583).

Table 5: Co-Payments Over Time, in % Of Total SHI Expenditures

Type of service % of total SHI-expenditures
	1980*	1992**	1994**
Dental services	20.0	32.8	40.6
Prescription drugs	4.9	3.9	8.9
Inpatient services	–	1.1	1.1
Heilmittel	2.4	9.4	9.2
Transportation	0.3	5.5	4.3
Preventive services/Rehabilitation	–	2.1	2.2
Total	3.1	3.6	4.2

* Old Länder only
** Old and new Länder
Source: Mielck 2000, p.240, relying on works by John, et al., 1998.

Since Healthcare Reform 2000 was enacted, employers can offer occupational health services, health promotion and other preventive programs. Sickness funds can or should use less than 2.5€ per insured individual for these programs, and 0.5€ for self-help activities for patients. Both of these figures are to be adjusted annually.

2.2. Financing

The system has managed all of the achievements outlined above relatively economically. In 1992, about 8.1 percent of gross domestic product (GDP) went into health care. However, this percentage grew to 10.3% of GDP in 1998 and can be expected to go up further as a result of three factors: aging, multi-morbidity, and medical advances. Another potential cause of increased costs may be political maneuvers that aim to cover up the true nature of the crisis; when these maneuvers have been exposed, the true cost of financing medical and long-term care may be higher than currently believed. The operating principle since the 19th century has been that no money exchange should touch on the direct patient-physician relation (Sachleistungsprinzip); the result is that large segments of the public do not realize the true cost of medical services, and remain unconvinced that the long-term sustainability of German health care may be in jeopardy. Some experts warn that the time bomb may go off one day.

SHI is financed through contributions (we follow US usage in this paper by referring to payroll taxes) levied equally on employers and employees and collected by sickness funds. Average payroll taxes of all sickness funds were 13.54% on January 2001 (supposedly below the level at the beginning of 1998). Variations between a high of 15.7% to a low of 13.7% across sickness funds also are reported (Barmer-Ersatzkasse 2002, pp. 42-44). In January 2002, a good proportion of sickness and substitute funds raised the payroll tax to an average of around 14-14.5%. About half of the enterprise funds raised their rates, but data that might explain why are unavailable. Are enterprise funds losing out because the competition for new members entails a rise in healthy members who may become patients? Alternatively, have they stopped being effective managers?

On January 1, 2002 , the national income ceiling for SHI was increased to 3,375€ monthly, as compared to 3,225€ in 2000. During 1991 and 2000, the income ceilings for SHI for old age and unemployment differentiated between residents in West and East Germany. These differences were abolished on January 1, 2001.

The actual percentage of the payroll tax is set on the basis of earnings rather than health risk, and applies irrespective of marital status, family size, or health status. Retired individuals pay about half of the contribution rate. All payroll taxes together add up to significant non-wage labor costs. With $23.78 per hour, Germany has the highest average hourly wage of all advanced industrialized nations; out of that wage, $10.67 covers payroll taxes for social security and health protection (Institut der deutschen Wirtschaft 2001). Table 6 breaks down percentages of gross wages that are used for non-wage costs. On the following page, Figure 1 provides an overall picture of financing of health care in Germany.

Table 6: Social Insurance Contribution rates (in% of gross wage)*

Year	Total	Old-age	Health**	Unemployment	Long-Term Care
1950	20.0	10.0	6.0	4.0
1955	20.2	11.0	6.2	3.0
1960	24.4	14.0	8.4	2.0
1965	25.2	14.0	9.9	1.3
1970	26.5	17.0	8.2**	1.3
1975	30.5	18.0	10.5	2.0
1980	32.4	18.0	11.4	3.0
1985	35.1	19.2	11.8	4.1
1990	35.6	18.7	12.6	4.3
1991***	36.7	17.7	12.2	6.8
1992	36.8	17.7	12.8	6.3
1993	37.4	17.5	13.4	6.5
1994	38.9	19.2	13.2	6.5
1995	39.3	18.6	13.2	6.5	1.3
1996	41.0	19.2	13.6	6.5	1.7
2002****	41.8	19.1	14.5	6.5	1.7

* Joint contribution rate of both employers and employees.
** Average contribution rate to all funds, from 1950 to 1969 to blue-collar workers’ funds only.
*** Since 1991 only the Länder in Western Germany.
Source: Manow, 1997, p. 40, relying on data from the Federal Ministry of Labor (BMA) 1997.

Source for update: KKH Nachrichten 2002, p.8.

Figure 1: A Financing Flow-Chart for Germany

Source: Busse, 2000a, p.97.

A risk-adjustment mechanism (Risikostruktur-Ausgleich, or RSA) has been set up in order to avoid cherry-picking of good risks by sickness funds and to reduce inequities in the level of the payroll tax charged by individual funds. The risk adjustment formula is a crude formula based on considerations other than need. Yet, it is reported to have achieved one important goal: reducing the discrepancy between the highest and lowest payroll taxes, thus reducing inequities among SHI membership. In 1994, close to one third of all those insured paid payroll taxes that differed by one percent from the average of taxes in all funds; by 1999, this number was down to seven percent.

The RSA has served as a risk-adjustment mechanism; in reality, as discussed above, it serves as a tool of subsidization and cost-shifting from public budgets to the SHI budget. The current governing coalition transformed the federal transfer payments earmarked for hospitals in East Germany of about 700 million DM into block grants (Sonderbedarfs-Bundesergängzungs-zuweisungen). A new federal law (Gesetz zur Reform des Risikostrukturausgleichs) came into force on January 2002; it is designed to encourage “solidarity among the sickness funds” and to create “fair competition.”[13] Sickness funds that offer disease-managed programs for the chronically ill are to receive additional funding. The new law addresses three dimensions of a risk-adjustment mechanism allowing for considering individual morbidity:

1. Funding of disease management programs starting in January 2002;

2. A nationwide pool of risks for those patients whose costs are above the average incurred by sickness funds starting in January 2002; and

3. Consideration of morbidity (multi-morbidity) and corresponding costs starting in 2007.[14]

How do Germany's spending habits on health care compare to those of other countries? OECD data shed enormous light on macro-expenditure and trends over time. Differentiating spending by sources of financing according to OECD data yields Table 7, which shows developments from 1970 to 1995. The most obvious observation is the deliberate policy of shifting costs from public budgets to SHI over time. If the OECD data on private sources are correct, this would mean that the private share has gone down. While this may be the case, it contradicts other observations on the increasing amount of cost-sharing based on German data (see Table 5). And it contradicts the German data in Table 8, which clearly shows that private households paid more in 1998 than in 1991.

Table 7: Main Sources of Finance (Percentage of Total Expenditure on Health Care), 1970-1995

Source of Finance	1970	1975	1980	1985	1990	1995*
Private
Statutory insurance	58.3	66.7	67.0	66.3	65.4	68.2
Taxes	14.5	12.4	11.7	11.2	10.8	10.0
Public
Out-of-Pocket	13.9	9.6	10.3	11.2	11.1	10.8
Private Insurance	7.5	5.8	5.9	6.5	7.2	6.6
Other	5.8	5.6	5.1	4.9	5.4	4.4

* 1995 data for both Eastern and Western Germany; all other years West Germany only.

Source: Busse 2000a, quoting from OECD Health Data 1999.

Rather than a distinction between public and private expenditures, a breakdown of expenditures by source along categories used in administrative practice provides a more differentiated picture about the diverse financing sources that exist in Germany.

Table 8: Expenditures* by Source, 1991 and 1998

Source	1991 %	1998 %
Public budgets**	13.4	10.3
SHI***	47.9	51.9
Social security (SHI for retired individuals)	6.7	6.8
Workers’ compensation	2.8	2.9
Private health insurance	5.1	5.7
Employers	16.4	12.9
Private households	7.6	9.5

* Total expenditures from all sources (by regional districts and municipalities, public and private employers, SHI and private insurance, private households), but adjusted to eliminate double counting and in particular to allow for contributions made through subsidies and payments by public entities to diverse insurance programs and payroll taxes by employees and employers.

** Without employer payroll tax minus revenues from long-term care insurance.

*** Expenditures including long-term care insurance.

Source: Federal Ministry of health 2001a, p.377.

What do Germans spend their money on? Table 9 provides a breakdown along the legal categories of SGB V. This pattern is not unusual. As elsewhere, the biggest chunk goes into inpatient care, followed by spending on office-based medical services expenditures for prescription drugs. Over 16 years, spending for inpatient medical services has gone up and spending for pharmaceutical drugs has gone down, as shown in Table 11. This latter decline is directly related to policy interventions.

Table 9: Percentage of Total Health Expenditures

Type of services	Percent*
Inpatient hospital services	33.32
Office-based medical services	16.17
Dental services without	5.80
Dental supplies
Dental supplies	2.64
Pharmacies/Pharmaceuticals	14.46
Other pharmaceuticals (OTC)	0.6
Hilfsmittel	3.59
Heilmittel	2.27
Wage continuation during illness	5.31
Medical services abroad	0.28
Transportation	1.82
Spas	2.00
Home care	1.18
Death benefit	0.58
Medical Service, Second Opinion	0.20
Net administration	5.35
Other expenditures	4.41

* Does not add up to 100%; 1.53% remains unexplained.

Source: http://www.bmgesundheit.de/presse/2001/pr01.htm

Table 10 shows trends in healthcare expenditures over a 27-year period from 1970 to 1997.

Table 10: Trends in health care expenditure, 1970-1998

Total expenditure on health care	1970	1975	1980	1985	1990	1995	1998*
Value in current prices (million DM)	42,356	90,380	130,128	169,637	212,106	359,723	–
Value in constant Prices 990 (million DM)	103,967	156,584	181,718	189,814	212,106	301,528	–
Value in current Prices per capita (US $ PPP)	175	375	649	979	1,279	2,128	2,361
Share of GDP (%)	6.3	8.8	8.8	9.3	8.7	10.4	10.3
Public as share of total expenditure on health care (%)	72.8	79.1	78.7	77.5	76.2	78.2	75.8

Source: Busse 2000a, pp.52-53, referring to WHO Regional Office for European Health. Total expenditure on health care in the WHO European Region (US $PPP per capita, 1997 or latest available year. Germany occupies the second spot with 2,364 per capita, trailing only Switzerland (2,611). In the WHO European region, Germany (10.7%) ranks first in total expenditures on health as a % of GDP, 1998 (or latest year)

*Source: OECD 2001, pp. 40-45.

Table 11: Health care expenditure by categories, 1980-1996 (percentage of total expenditure on health care)

Total expenditure on:	1980	1985	1990	1995	1996
Inpatient Care	33.2	34.0	34.7	34.6	35.0
Pharmaceuticals	13.3	13.8	14.2	12.3	12.7
Public Investment	3.9	3.4	3.1	3.2	3.0

Source: Busse 2000a, p.54, quoting OECD Health Data 1999.

2.3. Resources

Germany has rich resources for health care by international standards and a resources-rich German health industry, which encompasses large pharmaceutical companies, a small private insurance sector, a few global companies selling in-vitro diagnostics and medical supplies and equipment, and a large number of small and medium-sized enterprises. More specifically, the healthcare sector is an important employment sector, as table 12 indicates.

Table 12: Health and Employment in 1,000 (2000)

Nurses, nurses aids and mid-wives	765,000
Nurses in doctors and dentists-offices	508,000
Physicians	295,000
Nurses in care	138,000
Professionals treating muscles, give therapeutic baths and physical therapy	120,000
Medical-technicians	101,000
Dentists	63,000
Nutritionists, pharma-technical assistants	58,000
Pharmacists	53,000
Other therapeutic professions	52,000
Veterinarians	21,000
Medical practitioners (not MD)	15,000

Source: Globus 7395, 2002, based on Federal Statistical Office.

2.3.1. Providers

Germany’s supply of physicians is high. Students who meet academic requirements have a constitutionally guaranteed right to study medicine. This fact, plus an excellent and inexpensive university system, has resulted in the country educating physicians at a much higher per capita rate than the United States. Between 1970 and 1990, the number of physicians in the former West Germany more than doubled, and in 1991, the country had 3.2 physicians per 1,000 population, a higher ratio than most other members of the OECD. Germans tend to see a doctor more often than their neighbors, with a rate of 6.5 consultations per capita in the late 1990s compared to 5.3 in the US (OECD, 2001, p. 31).[15]

The right to enter medical training is secured in the Basic Law but in reality is mediated by the economy and the actual employment situation for physicians. It is reported that an increasingly large number of graduating medical students no longer go for training in a specialty; rather, they take other jobs in the private industry. German physicians used to have good incomes (dentists earned even more), but their average earnings have declined from six to three times the average wage since efforts at cost containment began in 1970s. The high number of physicians also reduced their earnings even further. The relatively high supply of physicians also means that young doctors face unemployment.

Public policy on medical providers has not imposed restrictions on specialization for medical graduates or on participation in the delivery of medical services under SHI. Nor has public policy until recently elevated the general practitioner (GP) to the role of gatekeeper of access to specialized medical services. All specialists were compensated for services under SHI. Table 13 shows all specialists in private practice, the changes over time, and a breakdown of those who had treatment rights in hospitals and hospital physicians who had treatment rights for outpatients.

Table 13: Specialties of SHI-affiliated office-based physicians, 1990-1998

	Physicians in private practice 1990	Physicians in private practice 1998*	Increase 1990-1998 in %	Private practice physicians with right to treat inpatients 1998*	Hospital physicians with right to treat ambulatory patients in 1998
Anesthetists	508	1,848	+264%	142	1,117
Dermatologists	2,535	3,299	+30%	25	99
ENT physicians	2,967	3,900	+31%	1,592	151
Gynecologists	7,306	9,580	+31%	1,574	862
Internists (General and subspecialists)	12,720	15,951	+25%	330	2,584
Laboratory specialists	419	577	+38%	**	90
Neurologists	3,228	4,847	+50%	23	636
Ophthalmologists	4,092	5,191	+27%	605	98
Orthopaedists	3,460	4,815	+39%	487	279
Pediatricians	5,128	5,824	+14%	39	701
Psychotherapists	842	2,653	+215%	**	363
Radiologists	1,439	2,282	+59%	**	751
Surgeons	2,539	3,435	+35%	512	1,781
Urologists	1,744	2,490	+43%	475	216
All specialties (including other)	50,567	69,204	+37%	5,939	10,360
General practitioners	38,244	43,659	+14%	142	503
Total	88,811	112,683	+27%	6,081	10,863

* Totals from column 4 also included in column 2.

** Not available but negligible.

From Busse 2000a: p.61, based on Federal Association of SHI Physicians 1999.

Historically, German health care has made a sharp distinction between physicians who provide office-based care and physicians who work full-time in hospitals. Office-based physicians are compensated on a fee-for-service basis, with incomes depending on the amount and kinds of health services they provide. By contrast, hospital physicians are salaried employees of a hospital, and only a small number of them are entitled to care for private patients and bill them for their services. Health care reform throughout the 1980s and 1990s has addressed this historical separation of the two care sectors several times, and stressed the need to interface outpatient and inpatient care. However, legislating cooperation across sectors is one thing; achieving the desired cooperation is entirely different. The movement toward overcoming the historical separation across care sectors has progressed slowly. With increasing needs for care by an aging patient population, and with the empowerment of the chronically ill and the disabled, the urgency of this change is crystal clear.

There may be an overabundance of German physicians; however, it is unwise to extrapolate from the current data and project into the future. Abundance seems to be turning into a shortage in some parts of Germany and health care sectors. This is due in part to the restrictions imposed on office-based physicians (Niederlassungssperre), the unequal distribution of physicians in East and West Germany, and in part due to the worsening working conditions in hospitals (overtime without pay, long shifts and little time off). The effects of intentionally limiting the number of positions in hospitals for young medical school graduates to train for a specialization are clearly felt. There were also differences in the fees earned East German physicians (90% of what West German physicians receive). On January 2002 these differences were adjusted[16] and money now will flow where patients are (Wohnortprinzip).[17]

If the new DRG-based funding system reduces the average length of stay, fewer physicians will be needed in hospitals. On the other hand, a good many of physicians will be retiring between now and 2010. Health care reform in 1993 mandated a reduction in the number of office-based physicians who treat SHI patients (generally about 90% of physicians join the association that grants them access to SHI members; if they do not join, they cannot be reimbursed under SHI). The law also introduced a long-term goal of limiting the number of specialists in geographic areas where they are over-represented; this goal will be achieved by January 2003.

In addition, this reform and successive healthcare reform legislation upgraded the status of the GP in law but failed to elevate GPs to a gatekeeper role in practice. Patients are entitled to a bonus when they consult a GP first; however, under SHI law, all those insured are simultaneously entitled to consult a specialist directly and can see more than one of the same discipline. The insured largely continue to prefer direct access to specialists and are unimpressed by the bonus.

2.3.2. Hospital Resources

The ownership of hospitals is the outcome of historical development and regional traditions rather than a conscious policy. There are three types of hospitals: public, nonprofit, and private for-profit. Each type accounts for about one-third of the hospitals. Public-sector hospitals are mostly owned by the Länder, municipalities, and counties, and provide about 50% of all hospital beds. Nonprofit hospitals, typically run by Catholic or Protestant organizations, provide about 35% of the beds, and for-profit hospitals account for 15%. In 1999, there was a total of 2,252 hospitals, not counting other institutions such as rehabilitation centers (German Federal Ministry of health 2001a, p.292).

Table 14: Changes in the public-private mix of hospital ownership

	Public		Non-Profit		Private		Total
	beds	%share	beds	%share	beds	%share	Beds
1990	387,207	62.8	206,936	33.5	22,779	3.7	616,922
1998	295,382	55.3	202,270	37.9	36,118	6.8	533,770
% change	-24%		-2%		+59%		-12%
1999*	50.8		36.1		6.7

Source: Busse 2000a, p.37.

*Data for 1999 from Federal Ministry of health 2001a, p.280.(No. of beds in 1999 not available. It is unclear if percentages from Busse are calculated in same manner as 1999 data.)

Despite impressive reductions of hospital resources in the mid to late 1990s, the length of stay and admission and discharge practices in Germany stand out when compared to her neighbors. In the late 1990s Germany's average length of stay was 10.7 days compared to 5.9 days in the US. Only Switzerland had a worse record (OECD, 2001, p.37). Germany’s inpatient occupancy rate was 86.5, also fairly high by international standards.

Between 1972 and 1986, the federal government and the Länder were jointly responsible for hospital policy making, but in 1986 the regional governments once again assumed sole responsibility for policy making, hospital planning and investment financing. The Länder own, operate and partially finance medical school hospitals and accredited teaching hospitals. They enforce licensing and accreditation of health facilities and of health professionals working in social services. Regional governments are responsible for policy development and implementation of social and nursing services, social assistance, youth services, and social work. Most important, the Länder remain responsible for the effective and efficient allocation and distribution of hospital resources.

2.4. Remuneration of Health Care Providers

Each year the formal process of negotiation brings together the national associations of both sickness funds and physicians in order to outline a budget. (The same procedure applies to the dental sector.) The associations work with guidelines suggested by the Advisory Council for Concerted Action in Health Care, as well as umbrella agreements for the delivery of quality medical care and fee schedules tied to the relative value scales of about 2,000 medical procedures. The key player at the national level is a little known but powerful Federal Committee of Sickness Funds Physicians and Sickness Funds (with several subcommittees). Until the early 1990s, it alone had set spending limits on the practice of medicine in physicians’ offices, determined the inclusion of new medical and surgical procedures in the national benefits catalogue and defined preventive services. This committee adjusts the remuneration of physicians and formulates guidelines on the distribution and joint use of sophisticated medical technology and equipment by office-based and hospital physicians. However, in the early 1990s, Mr. Seehofer, the minister of health, took over decision-making from self-governing bodies, initiating most decisions and giving specific instructions. This redrawn balance between self-governance and the power of the minister of health, acting on behalf of the elected government, remains unchanged.

At the regional level, regional associations of sickness funds and sickness fund physicians negotiate specific contracts, including overall health budgets, reimbursement contracts for all physicians in a region, practice profiles for monitoring physicians, and reference standards for prescription drugs. Sectoral budgets existed for physicians, prescriptions drugs, hospitals and therapeutic treatments, medical supplies and patient-assisting devices (Heil-und Hilfsmittel); psychotherapists are now paid out of SHI funds as well. In 2001, due to renewed pressure by the pharmaceutical industry, the sectoral budget for pharmaceuticals was abolished; unsurprisingly, expenditures for pharmaceuticals have gone up 10% in 2001 compared to 2000. Planned policy responses to this increase will be examined below.

A key instrument for containing SHI health care costs is the global budget, introduced in the mid-1980s, which sets limits on total health care expenditures. Legislation in 1993 retained these cost containment methods until 1996, when it was hoped that structural reforms would make them unnecessary. However, this goal was never achieved; instead, more stringent cost containment measures were enacted through a series of reform measures in the 1990s. Health Care Reform 2000 introduced the most dramatic change in funding and reimbursement by introducing DRGs as the sole payment method for all German hospitals by 2007 (Altenstetter 2001).

By means of the global and regional budgets, regional increases in total medical expenditures are linked to overall wage increases of sickness fund members (see Figure 2). The funds transfer specific amounts, negotiated as an annual budget, to the regional association of sickness fund physicians; the physician associations pay their members on the basis of points earned from services performed in a billing period. The value of the services is determined by the negotiated fee-for-service schedule, which assigns points to each service according to the relative value scale (Einheitlicher Bewertungsmaß, or EBM[18]). Under this system, no exchange of money occurs between sickness fund patients and physicians. However, the value of points has declined enormously throughout the 1990s, and some physicians have begun to offer extra services; they charge patients directly, if the patient agrees, to the extent permissible under the law. Politically, this practice is not looked upon favorably. Privately insured patients pay physicians directly and are reimbursed by their insurance companies after submitting their claims.

Figure 2. Cost-Containment through Budgets and Spending Caps, 1989-2007

Regional hospital associations and regional associations of sickness funds in the past have negotiated standards for hospital care and procedures. Each hospital negotiated a contract for service prices with the regional sickness fund associations. Until 1993, hospitals’ operating costs (of which salaries made up as much as 75%) were covered by per diem rates paid by public and private insurance. Hospital investments and equipment were paid by general revenues in a Land. Legislation in 1993, which became effective in January 1, 1995, introduced a more sophisticated method for paying for hospital services than the per diem rates. Four categories of hospital costs were distinguished and the costs for each type were negotiated:

• Payments to diagnosis-related groups, with the possibility of an extra payment if a patient is hospitalized for an unusual length of time

• Special payments for surgery and treatments before and after surgery (160 operations)

• Departmental allowances that reimburse the hospital for all nursing care and medical procedures per patient per day

• Basic allowances for non-medical expenses, such as accommodation, food, and television.

DRG fees and flat fees for surgical interventions currently make up 25% of inpatient costs. After the DRG system is in place by 2007, it will pay for close to 100% of inpatient costs.

Building on Healthcare Reform 2000, a law on DRGs (Fallpauschalengesetz) passed the Bundestag in mid-December 2001. The highlights are:

• Emphasis on quality, transparency and economic management (Wirtschaftlichkeit)

• Budgets will be eliminated and DRGs be phased in over several years[19]

• DRGs and quality assurance are intimately linked; quality reports of performance are to be made available to patients

• Working conditions in hospitals are to be improved, overtime to be reduced, and more time off be given to all hospital staff

• Reductions of length of stay are expected to occur immediately in 2003

• Audits by the Medical Service (Medizinische Dienst) of admissions and billings according to DRG are mandated

• In case of disagreement, arbitration among partners is to be available

• Hospitals are required to engage in disease management, which requires cooperation between hospitals and office-based physicians.

• All providers (personal and institutional) are to cooperate

With 45 billion €, expenditures for hospitals are the biggest chunk of the national health budget. The total volume of turnover amounts to about 55 billion €.

Change in response to ever-rising increases in the costs for pharmaceuticals have been recurrent. In response to a 10% increase of the costs for pharmaceuticals in 2001 compared to 2000, physicians have undertaken implicit “rationing,” refusing to prescribe once their individualized budget for drugs is gone. The federal government intends to have a new draft bill adopted by parliament in February 2002. In order to reduce costs for prescription drugs, the law addresses five areas,[20] which are further specified in the Sparpaket[21]

• More use of generics

• A 6% discount for prescription drugs under SHI and care insurance by pharmacists (up from 5% in 2001)

• Cost-benefit analysis of the price of comparable drugs and generics, with the federal committee of physicians and sickness funds to make specific recommendations to physicians

• A commitment from the pharmaceutical industry of 400 Mio DM, to be transferred to SHI, respectively sickness funds

• Hospitals must address whether prescription drugs are efficacious and consider low cost alternatives

Structural reform, rather than harming patients by withholding prescriptions, is one slogan of current healthcare reformers; reestablishing confidence between patients and physicians is another. With this patient-orientation in mind, parliament adopted a law designed to stabilize spending for prescription drugs; this goal was not achieved with sectoral budgets. New steering instruments stress:

• Strengthening of self-governance of providers and contractual arrangements with sickness funds

• More flexibility for self-governance to enter into contractual arrangements

• Quality of inpatient and outpatient care with emphasis on outpatient over inpatient care, including the prescription of innovative drugs

• Fixed prices for different sizes of packs and allowing for age and income of a patient

• Information, counseling and data transparency; physicians to receive summaries of their prescribing behavior

• Strengthening of individual responsibility over collective responsibility of all physicians through regional sectoral budgets

• Splitting the budget and volume for prescription drugs from that for Heilmittel (therapeutic treatments such as massages, physical therapy etc.)[22]

3. Long-term Care Insurance (LTCI)

LTCI became the sixth pillar of the German welfare state, with a time lag of some 120 years when compared to the other pillars.[23]It follows SHI in organization, financing, accountability, and self-governance of care funds. It took some twenty years of lively debates and conflictual politics over long-term care[24] before long-term care insurance (LTCI) provided legal access to non-medical care. LTCI came into force on January 1, 1995 (SGB XI), building upon an insurance-based approach that, historically and currently, is widely preferred over tax-funding.

Since 1995, the German parliament, first under the conservative Kohl government and then Schröder’s Social Democratic/Green coalition, enacted additional federal legislation designed to improve home care and the quality of care in nursing homes. The Pflege-Qualitätssicherungsgesetz (PQsG) is designed to improve nursing care through quality assurance elements, and a federal law on complementing existing care benefits, the Pflegeleistungs-Ergänzungsgesetz (PflEG), targets individuals in high need of home care and providing them with new and improved benefits starting in January 2002. In particular, PflEG targets elderly individuals suffering from dementia and other mentally handicapped or ill individuals who need considerable care. Priority is given to home care and relief for family, relatives or friends who care for a patient. Parity of coverage for outpatient and inpatient care was established by including outpatient hospice care. The care infra-structure shows considerable variations from city to city and across German regions and communities, ranging from excellent to substandard (German Federal Ministry of health 2001a, pp. 280, 282-283, 295-297).

In theory, LTCI directly follows the approach of SHI in terms of organization and financing. In practice, and in order to secure the backing of business and employers which include regional, district and local governments, all German regions except Saxony abolished a legal holiday. In January 1995, the payroll tax was set at 1.3% of wages (“insurable earnings” are not considered real income); after nursing home services were added in 1996 it was raised to its current level of 1.7%. In practice, the percentage for LTCI can only be changed through federal legislation, in contrast to SHI where individual funds set the level of payroll taxes. For SHI and LTCI, the income ceiling (Beitragsbemessungsgrenze) from which the payroll tax is calculated is 3,375€ per month starting in January 2002 (an increase from 3,225€ 18 months ago). Likewise, the annual “insurable” income ceiling (Krankenversicherungspflichtgrenze) now is 40,500€.

LTCI delineates three levels of care: “considerable,” “severe,” and “extreme,” with the latter including cases of extreme hardship. Within the three care levels, LTCI further distinguishes between several types of care:

• home care

• stand-in care

• part-time care

• short-term care

• technical aids

• nursing courses for relatives and volunteer caregivers

• permanent institutional care[25]

3.1 Benefits

Like SHI, LTCI is a compulsory insurance-based program rather than a means-tested program. Most residents in Germany, whether German or foreign, working, retired, or unemployed, became automatic members with no choice to opt out. “Compulsory” membership may be interpreted by the American reader as coercive; however, the political tradition of solidarity in Germany is so ingrained that officials and others talk about SHI and LTCI as being “social” rather than compulsory while they use the term “compulsory” for those outside of LTCI.[26]

Like SHI, LTCI is divided into the mandatory plan (perceived and accepted as a “social” care insurance scheme covering some 92% of the population) and private care insurance plans purchased from private for profit companies. Some 7% of the population whose income exceeds 3,375€ per month are outside LTCI. By law, they are required to purchase a comprehensive private health insurance plan. However, the scope and substance of benefits that such private insurance policy must offer are regulated, and coverage for hospital treatment must be included. Supplementary insurance or travelers’ health insurance may not substitute for private LTCI.

LTCI is not designed to cover the total costs of care; benefits under LTCI include home care designed to supplement care offered by family or friends, as well as institutional care. Legally, a beneficiary has a choice of going to a nursing home or a home care agency. In actuality, this choice is a function of available services in a region and community. Starting January 1, 2002, benefits for LTCI were improved; the new benefits are summarized in Table 15.

Table 15: Cash payments & Other Benefits by Care Level (as of January 1, 2002)*

Type of care		Care level I “Considerable”	Care level II “Severe”	Care level III “Extreme” (& Hardship cases)
% of Individuals in each care level***		52.2%	36.9%	10.9% (incl. 0.8% hardship)
Home care	For services	384	921	1,432 (1,918)
	Cash payments per month	205	410	665
Care provided	Amount up to four weeks per calendar year**
– by relatives		205***	410***	665***
– by others		1,432	1,432	1,432
Temporary care	Amount per calendar year	1,432	1,432	1,432
Semi-inpatient day and night care	Amount per calendar year	384	921	1,432
Institutional care	Amount per month	1,023	1,297	1,432
Institutional care in facilities for the disabled	Amount	10% of invoice up to a maximum of 256€ per month

* Cash benefits are given in €.

** Caregivers are entitled to receive cash payments for invoiced or documented expenses for transport, loss of income, etc. up to a total of 1,432€.

Source: http://www.bmgesundheit.de/presse/2001/2001/141.htm

***Source: http://www.bmgesundheit.de/themen/pflege/ueberbl/entwpflege.htm.

3.2. Organization

As a “pay-as-you-go program”, the Pflegeversicherung is legally, financially and organizationally separate from SHI; however, it fully incorporates the well-known “provider” and “purchaser” split characteristic of SHI. Unlike the Medicare and Social Security programs in the US, operational responsibilities for the administration of LTCI are linked with the local operations of about 400 local sickness funds (down from about 600 in November 2000). LTCI fully builds on the historical pattern of a two-tiered system of sickness funds: locally operating general sickness funds (comprised of six different types covering about 60% of the population) and the national substitute funds (covering about another 30% of the population) which primarily cater to white-collar workers. The local boards are composed of an equal number of employers’ and employees’ representatives.

Non-profit care funds serve as a contact point for beneficiaries; in 2000, they contracted with some 8,600 nursing homes and almost 13,000 home care agencies.[27] However, each contract (Versorgungsauftrag) is negotiated between an individual nursing home or home care agency and a joint panel of regional LTCI associations. Without a care contract, there is no funding by LTCI. Why is contracting done by regional associations rather than by the boards of individual funds as for sickness funds where employers and employees are equally represented-the organizational status quo of sickness fund management?. Regional and district governments and municipalities are operators of nursing homes and hospitals, and they also pay for social aid. As operators and employers, who pay half of the payroll tax for LTCI, they have a keen interest in an appropriate compensation formula. They wish to add weight to their voice when the price is set for the care that LTCI reimburses. A negotiated price becomes an integral part of a service contract. Care insurance funds undoubtedly have a monopoly on regulating the delivery and the price for nursing care in the care market.

The full politics of policy-making and implementation of LTCI cannot be explored here; but the stakeholders include a wide variety of public, quasi-public and private groups:

• the federal government

• the Länder

• municipalities and districts

• Sozialhilfeträger (payers of social aid)

• care funds

• churches

• social welfare associations

• privately organized initiatives

The Medizinische Dienst, a kind of auditing office inside sickness funds which employs physicians and reports to sickness fund management, defines need levels and determines the level of need required by an individual patient. A modest compensation for care givers at home is also made available under the program.

3.3. Financing of LTCI

The payroll tax of 1.7% for LTCI is deducted from an individual's salary up front and transferred to the respective sickness funds. All sickness funds serve as collectors for all insurance programs and in turn transfer the relevant amounts to care insurance, social security and unemployment. Unlike SHI, the financing of LTCI medium-term is on firm ground, according to the ministry of health in 2001. Table 16 summarizes revenues and expenditures over time and estimates expenditure developments up to the year 2004.

Table 16: LTCI: Estimates by the Ministry of Health (in Billion DM) Basic Model and Constant Benefits

Year	Revenues Total	Expenditures Total	Surplus/Deficit	End of Year Balance*	Legal reserves
1995	16.44	9.72	6.72	5.62	1.22
1996	23.55	21.24	2.30	7.92	2.66
1997	31.18	29.61	1.57	9.50	3.70
1998	31.30	31.05	0.25	9.75	3.88
1999	31.92	31.98	-0.06	9.68	4.00
2000	32.36	32.61	-0.25	9.43	4.08
Estimates
2001	32.22	33.47	-0.25	9.18	4.18
2002	34.16	34.09	0.07	10.35	4.26
2003	35.21	34.69	0.52	10.87	4.34
2004	36.28	35.57	0.70	11.58	4.45

* 2002 includes repayment of an investment loan of 1.1 Billion DM according to Art. 52a, Pflege-VG

Source: http://www.bmgesundheit.de/presse/2001/2001/18.htm

Two new federal laws seek improvement in the quantitative and qualitative deficits in prevention, early diagnosis, comprehensive therapy, home care, and counseling. The laws will improve LTCI benefits, as well as assign individuals to care levels. A final priority is the improvement of home care and improvement of institutional care (Pflege-Qualitatssicherungsgesetz (PQsG). The bulk of the additional costs of some 10 million DM (almost 5 million €) will be borne by the regional governments and municipalities; the federal government is expected to pay 1 million DM or (almost half a million €), and private long-term care insurance are expected to contribute 9.2 million €.[28] Starting in January 2005, sickness funds are to pay for institutionalized mental health services.

4. Mental Health

Mental health problems rank second on the list of morbidity indicators in Germany. However, mental health has no priority status in research, teaching or the public debate about health. In addition, mental health is gendered; services and benefits under LTCI tend to go to women more than men. Until 1995, and even up to 1999, there was no equivalence of coverage between mental health and physical illness and handicaps in terms of entitlements, coverage, or patient rights. Nor has there been parity in available mental health resources, despite some 25 years of efforts, albeit very modest ones. Mental health was primarily understood as requiring treatment by psychiatrists and institutionalized care; only recently has this imbalance and exclusion from care been addressed in Germany, as it has in other advanced industrial societies.

LTCI, coupled with additional federal legislation in 1999, created the conditions for individuals to directly consult a social psychologist or a social therapist without a referral from a medical doctor. Child and youth psychologists treating patients up to the age of 21 now participate in the delivery of mental health services under the umbrella of SHI, and are now on equal footing with medically trained psychiatrists and clinical-medical psychologists. In addition, a new entitlement to office-based social therapy (ambulante Soziotherapie) is designed to help individuals cope with life, family and work while keeping them out of institutions. The achievement of this goal depends in large measure on close cooperation among a number of sites and networks of providers. Progress is slow and implementation depends on local circumstances.

Quality assurance in mental health services is a mandate as much as it is for physical health care. Quality mental health services are expected to meet the highest standards according to the state of knowledge in the field. Rather than developing guidelines and defining quality mental health care, the federal government has transferred this responsibility to self-governance bodies and scientific societies, as it has done for medical, dental and hospital services. Self-governance bodies define reimbursable quality mental health services under LTCI.

In her opening address to the first World Congress on Women’s Mental Health in March 2001 in Berlin, Ulla Schmidt, the minister of health, laid out her vision for improving access and benefits for mental health services in Germany, including:[29]

• Improved cooperation among providers and institutions alike

• Interfacing inpatient and outpatient care, with a focus on community-based and patient-oriented services, including reliance on self-help groups and information campaigns

• Allowing for gender-specific and interdisciplinary curricula, education and training

• More international cooperation in research about women’s mental health

• Support in Germany for the worldwide anti-discrimination campaign of physicians and therapists

• Prevention as the best safeguard against mental health problems

Healthcare Reform 2000 also addressed the need for improving mental health services. It stressed three objectives in particular:

• Community hospitals now can offer outpatient services which they were prevented from doing until the 2000 legislation

• SHI pays for social therapy and closer cooperation and coordination between providers of different disciplines

• Psychiatry will not come under the DRG system in order to avoid pressures for early discharge; a proposal is on the table to use a new concept, "needed therapy time" instead of length of stay, the traditional measure for keeping information

Other observations emerge from a cursory look at published information, speeches and data from the internet. All of these sources point to a potpourri of ideas and policy intentions. Time will tell whether any follow-up will happen. While this paper cannot provide detailed descriptions or explanations, some of these points are listed below:

• Politicians accept federalism in mental health services. Regional governments and service providers will organize and provide mental health services, as they see fit; hence regional variations will exist

• More efforts need to be made to link outpatient and inpatient care through various networks of providers

• Public policy recognizes that about 15% of children and youth are in need of psychiatric care

• Public policy differentiates between various needs for mental health services among the elderly

• The social code (SGB XI) was rewritten; sufferers from mental health problems have as much a right to human dignity as individuals who do or do not suffer from a physical illness

• The rights of patients vis-a-vis public bureaucracies and institutional providers of care (Rehabilitationsträger) have been strengthened in the SGB XI

• The European program of “mental health in mental retardation” is supported by Germany

• Family members, neighbors, friends need as much training as professional staff

• The imbalances in over-, under- and inappropriate care must be reduced

• Depression is now included in WHO's sponsored program of "health for all"

• With a delay of 20 years over the US, the federal government now is supporting an anti-discrimination movement

• The elimination of bias towards the mentally ill in society at large needs more attention

This program of action from rhetoric to reality take some time before Germany has caught up with neighboring countries. Numerous hurdles of all kinds (resources, attitudes, skills, staff etc.) will have to be overcome.

4.1. Institutional Mental Health Services

The impact of federal legislation over a period of 25 years is seen in the reduction of the average length of stay in institutions for mental health problems; currently it ranges between 20 and 40 days. Institutional resources for mental health services were reduced by 50% through deinstitutionalization and decentralization, according to Dr. Klaus Schröder of the Federal Ministry of Health.[30] A network of outpatient and inpatient services makes a mix of services available:

• Office-based medical specialists

• Social welfare services

• Outpatient units up to complementary day centers

• Assisted living

• Rehabilitative services

In Dr. Schröder’s view, the shift from institutional (verwahrende) to therapeutic and rehabilitative services is working, as is the shift from an institution-oriented to a patient-oriented delivery system. The latter approach includes support for living alone with help and support through self-help groups, networks of individuals and other activities.

5. The Public Health Service

The Public Health Service is a multi-level organization of regional, district and local offices staffed by civil servants, public employees, and individuals on part-time contracts. Public health departments are operated by the Länder, and it is the Länder who are responsible for enforcement, compliance and implementation. Since 1945, these offices have not been an important part of German health care. Most important preventive functions were transferred to the office-based sector under SHI. Still, the Public Health Service retains major monitoring and supervisory tasks of all health sites (institutional and non-institutional) and the monitoring of contagious diseases and infection. In the last 20 years, environmental concerns created new tasks for the Service, particularly in environmental health. Concerns over biological terrorism have added new priorities to public health departments and the federal institutes responsible.

The major responsibilities of the Public Health Service are listed below (Busse 2000a, pp.57-58):

• Supervision of employees in health care institutions: hospitals, surgeries of doctors, dentists or non-academic medical practitioners, pharmacies, blood donor centers, dialysis centres, emergency and ambulance services

• Prevention and monitoring of communicable diseases

• Supervision of commercial activities involving food, pharmaceuticals, drugs and medical goods and equipment

• Supervision of public facilities: leisure and recreational facilities, public swimming pools, sports facilities, children’s playgrounds, camping sites, airfields, ports and railway stations

• Environmental health

• Counseling in health and social matters (mother and child)

• Providing community-based social psychiatric services

• Health education and promotion

• School health and other groups

• Official certification, reports and expert opinions

• Collection and evaluation of data of significance to public health

As in other advanced industrialized societies, there is a huge gap between law and reality. In regard to blood vigilance, for example, Germany found herself in good company by not taking advantage of existing capacities to protect public health. Amid uncertainties about incomplete and controversial evidence, decision-makers were typically fighting the last war by relying on the out-of-date knowledge of the 1970s. Decision-making and implementation capacities were in place but those in positions of responsibility to make decisions and implementing remedies did not act or, when they did act, they acted in bad faith (Feldman and Bayer, 1999).

6. Revisiting “Regulated” or “Mangled” Competition

This paper began with a debate between Reinhard and Brown and Amelung; three points implicit in their analyses require revisiting. First, the German “formal” process is hardly made up of private actors who behave like entrepreneurs, as Reinhard claims. Second, while Reinhard claims the Germans may be emulating the US model, differences in policy, institutional contexts, policy-making styles and the ways the political game is played in each country are profound, and American style capitalism and German style capitalism do not create the same conditions for competition. Third, the link between spending and public health status is tenuous in both countries.

The disagreement between the authors is not between a “half-empty” or pessimist interpretation by Brown and Amelung versus Reinhard’s “positive” analysis, as the editor of Health Affairs suggests. The really thorny issue is about how to measure and judge the working and effectiveness of managed competition and managed care in distinct institutional contexts, and how and whether the results/outcomes of healthcare reform—whether obtained through managed competition or state intervention—can be ascribed to one of three clusters of influences: the choice of instrument (i.e., competition or competitive elements), the interplay between stakeholders and institutional arrangements, or, finally, the environment in which this interplay takes place. In order to understand outcomes, it is insufficient to look solely at decision-making. The influence of political culture as a major background variable with wide ramifications for many elements in each country cannot be ignored nor the effects of long-term factors and the inheritance of policy. The historically developed self-governance structures and their relationship to federal and state actors need to be accounted for in any cross-national comparison.

One thing seems clear. No matter which instrument is used—market forces or state intervention—and by whom, costs are rising predictably in light of three transformations that Germany shares with other countries: aging, the epidemiological transformations associated with aging and new diseases, and the role of advanced medical technology in providing care. We are reminded everywhere that peace, happiness and health status cannot be bought with money alone. If Germany ranks ahead of the US in the UN-WHO sponsored exercise in international health policy research, is this a case of one country doing a better job than the other? Both are caught in the same phenomenon: spending has a limited effect on health status (OECD 2001). And the healthcare system explains only 10-40% of changes in life expectancy (Sach-verständigenrat für die Konzertierte Aktion im Gesundheitswesen, 2001, p. 24, citing international literature).

For most European conservatives (with the possible exception of Mrs. Thatcher), state intervention and markets have gone hand in hand in the not so distant past. European conservatives, including their fellows in Germany, historically have never hesitated to call for state intervention while simultaneously relying on market mechanisms. An astute observer of the German scene, Josef Joffe, succinctly characterizes the opposition chancellor candidate Mr. Stoiber as being "statist, subventionist and interventionist" in the healthcare area (2002, p.1). Joffe adds two unwritten constitutional rules: insist on the status quo but, if reform is necessary, losers must be compensated. If this is what is in store for health care reform it will not be very different from what Brown and Amelung have described. It certainly will not be entrepreneurship, as this tern is usually understood; American-style competition it is not.

The data presented in this paper add weight to the argument that the triangle of solidarity, subsidiarity (decentralization to public and private organizations) and self-governance is the stuff that has held the German statutory health insurance program (SHI) together in the past and is the stuff that will somehow hold it together in the future. When deeply ingrained values and behaviors influenced by these notions (the “three S’s”) come into play, they produce a distinctive social, economic and political order which has harnessed resources and allocated the delivery of health care to complex institutions over time. They also have a strong normative pull on political discourse and, at the same time, present a multifaceted empirical side characterized by organizational diversity, fragmentation, sectorization, and decentralization.

By way of summary, the interplay of self-governance, solidarity and subsidiarity (decentralization), coupled with a strong state-centric model of governance, has produced different cocktails of implemented health policy, operational conditions, and constellations of stakeholders operating out of state offices and/or self-governance. Competition and competitive elements are just the latest ingredient. It seems that “regulated” competition, German-style, is more like pouring new wine into old bottles than it is evidence of a "new paradigm" put to work.

7. Conclusion and Outlook for the Future

Whether it was the shock of discovering that Germany ranked only 34th in WHO’s World Health Report 2001; a broader receptiveness to and awareness of health issues beyond the narrow focus of SHI and cost containment by a new generation of health professionals, and in particular the new coalition government since 1998; or, finally, whether Europeanization and international factors challenged the credibility of evidence used in domestic political and professional discourse, subjecting it to critical cross-national comparison; the tenor and the focus of the debates in the health field have been changing for some time. The 1990s saw an incredible record of frequent state intervention and a redrawing of the political balance between elected governments and self-governance structures at both federal and regional levels. These two trends are very much alive. Laws, regulations, informal provisions, and standard operating procedures in each service and care sector have changed at such incredible speed that rigorous assessments of the dynamics of these changes in policy content, political and institutional terms, and their impact on policy outcomes is difficult. However, the basic policy and institutional arrangements have not changed much.

Policy and structural stability are two features that characterize developments between 1883, when SHI was enacted, and the 1970s. Since then policy stability is being challenged by rising costs, the demands and needs of an aging population, and increasing demands for the best available treatments. Given the major disruptions of social and political order in Germany over that span, the structural stability is even more astounding. Two of these structural characteristics deserve repeated mention: the dominance of federal and regional state actors, and federal and regional self-governing bodies. Rather than being concentrated in one center, the debates about health issues have therefore always proceeded on several layers within an established hierarchy of decision-making: in the political arena with a dominance of the federal center over SHI; the federal and regional arena of corporatist providers and payers; and professional and expert circles. The general public, self-help groups and individuals largely have been excluded from these debates. These layers of decision-making routinely came together only in the context of topics bearing on SHI. However, at the delivery end, effectively functioning circuits of cooperation and communication from one service sector to another and from the care sector to the medical sector hardly existed in the past.

Since the mid-1970s, cost containment has been a recurrent agenda item. Reforming the delivery of services has been sought, decided upon, enforced and implemented from the top-down; so have other measures, such as the setting of specific health goals and priorities and a move towards outcomes-oriented evaluation. During the last few years, however, reformers have begun looking for reform from the bottom-up through the greater participation of key target groups excluded from health policymaking in the past in most German regions: regional and local governments, all kinds of service and care providing institutions, regional and local associations, and patients and their families or friends, especially through their participation on local or regional boards. Reformers have favored prevention (primary and secondary) and early detection of disease for quite some time, although they have generally been timid in reallocating resources from the curative sector to prevention. Current comments about these concepts may be nice words, but they have been heard before without any evidence that resources allocation changed.

Still, at the heart of any debate about reforming the German healthcare system continues to be the crucial economic question of whether financing remains insurance- and solidarity-based, whether the payroll tax for SHI and LTCI can be raised ad infinitum, and whether spending for health should remain coupled to general wage and salary developments in the economy at large. The alternative is the shift of some health financing to tax-funding. Historically, this issue has been framed politically; in light of the forthcoming federal election in September 2002, it will remain a highly political issue, independent of whether or not proposals seek more state intervention or seek to truly economize and marketize health care by introducing additional competitive elements. Between now and September, considerable policy and campaign rhetoric should be expected but not action. (Unsurprisingly, the coalition government under Schröder and the opposition led by candidate Stoiber are busily presenting programmatic plans to the electorate which they promise will be enacted if they are elected.) While the once sharply drawn boundary lines between ideological camps have given way to a more inclusive policy community that influences the public debate, there are discernable differences in the current reform proposals. However, neither the differences nor the proposals are new. Whatever reform is enacted, the effects of reform will take time to appear.

The Social Democrats reject what the Christian Democrats and Free Democrats accept, namely the notion that medical services must be differentiated between basic or core services to be covered by SHI and voluntary services which patients would pay out-of-pocket or through private insurance. Some reformers in both major parties wish to revise the principle of Sachleistungsprinzip, which in the past has not allowed direct money transactions between providers and patients. Reformers claim that patients should receive an invoice, pay it, and be reimbursed later. But what is a normal practice in many advanced industrialized nations is a revolutionary and conflictual proposal in Germany.

Co-payments will remain an essential element of healthcare reform; they are likely to go up if the Conservatives are elected, but remain at the current level under the Social Democrats. Both parties agree that waivers (Sozialklausel) are imperative for the chronically ill and low-income groups and that a financial burden of 2% of annual income is acceptable socially and politically (Überforderungsklausel). Other proposals seek to subject all working and non-working individuals to SHI and include income from any work, even the low paid 325 Euro jobs which hitherto were excluded from the payroll tax, thus broadening the financial basis of SHI.

Most reformers also recognize the need for better coordination across all types of medical, rehabilitative, nursing and home care. They suggest that networks of providers and caregivers must cut across the highly sectoral delivery system of medical services and care that currently exists. They promote flexible contracts between individual providers and payers, thus bypassing self-governance and the corporate entities of physicians.

According to the CDU/CSU, the balance between solidarity, subsidiarity (public-private relations) and individual responsibility must be redrawn; income from rent, investments and wealth must count towards a definition of a socially and politically acceptable financial burden for an individual or family. Christian-Democrats feel strongly that the combined payroll taxes of all insurance programs (social security, unemployment, nursing care and health services) should not exceed 40% of salary wages. They are intent in lowering the current percentage to 1995 levels.

The perception that enormous reserves still exist in the healthcare system that could and should be put to better use and effectiveness is widespread; yet for others, there are limits to how many restrictions you can impose upon providers without the risk of bringing down the whole system. Most reformers now accept the notion that elements of evidence-based medicine and technology assessment of health care do offer a few remedies and should be pursued wisely and intelligently. After decades of opposition and political refusal to institutionalize prevention and health promotion on the one side and “best practice” guidelines in the medical and nursing care system on the other, Germany now actively participates in benchmarking efforts across European regions. These efforts seek to identify regional and local inequities in the delivery of services and care across European regions. The delay in accepting benchmarking, compared to European neighbors, is in stark contrast to Germany’s pioneering role in the 19th century, when it enacted the first public health insurance program and was a leader in medical science.

The political support for self-governance arrangements remains strong, embedded as it is in tumultuous and conflictual political development in Germany. Retaining self-governance and cozy cartels of providers and payers have broad backing. Others want to loosen the provider monopoly on decision-making by strengthening the power of payers instead. Supporters of strengthening the payer-side are found in the two major parties: in the SPD, there is Florian Gerster, minister for social affairs in Rhineland Palatinate, and in the CDU/CSU there is Horst Seehofer, the minister of health under the Kohl government from 1993 to 1998.

Looking ahead and outside of Germany, European integration and internationalization of health issues provides a new dimension that cannot be addressed here. The issue of whether German competition law and European competition law are identical or, at least, mutually reinforcing, is of at least as much importance as whether German competition may continue to justify “cozy cartel arrangements.” This is no longer solely an internal German issue, and will not decided through domestic politics alone.

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[1] The author would like to thank Richard J. Meagher of the CUNY Graduate Center for his assistance in editing and formatting this paper.

[2] The paper draws on my own writings on the German healthcare system, and in particular a forthcoming article (2001), as well as a rich literature on healthcare in Germany; for more details, see Busse’s English-language description of the European Observatory on Health Care Systems on Germany (2002a). This description can be downloaded from http://www.observatory.dk.

[3]Andrea Fischer, the first minister of health under Schröder, nominated the advisory council in March 1999, and Ulla Schmidt, her successor, continued the brief; see new SGB V Fünftes Kapitel § 142.

[4]Gutachten 2000/2001. Kurzfassung.http://www.svr—gesundheit.de

[5] These services—so-called versicherungsfremde Leistungen—should not be paid from payroll taxes to SHI. They constitute only 1.6% of total annual SHI expenditures, strictly speaking. They include such benefits as death benefits, cash payments during maternity leave, home help, reproductive health (contraception, sterilization and abortion) and cash payments for child care. With the exception of reproductive health, there are few disagreements between the SPD and the CDU/CSU about financing these services from taxes (Krimmel, 1998, pp.20-21).

[6] While this healthcare structure derives its legal authority from the 1949 constitutional law, the roots of the current system can be found farther back in time.

[7] SGB V is the most important code for SHI. Federal provisions govern the Federal Code of Practice for Medical Practitioners, the Dentistry Act, and training regulations for doctors, dentists, veterinary surgeons, pharmacists, and non-physician health care providers. Among the most important national laws are the Drug Law, the Narcotics Act, the Hospital Financing Act, the Federal Law on Communicable Diseases, the Federal Law on Medical Products and the Long-term Care Insurance Act.

[8] Occupational status remains the criterion for miners, agricultural workers and seamen.

[9] IGEL refers to a) services not included in the benefits catalogue of SHI, b) services which patients wish to have and c) services which can be recommended for medical reasons or are not harmful medically, at least (Krimmel,1998, p.130; for further details, see pp.139-185).

[10] Starting in January 2002, members under compulsory SHI receive the same right to choose their sickness funds as those holders of SHI who are considered voluntary members. Both groups now can enroll in new sickness funds, but they must remain with the new fund at least 18 months.

[11] In the late 19th century, a cash payment to cover part of the costs of a funeral was important to assist a poor widow and her children. This payment likely survives because, once implemented, benefits are extremely difficult to eliminate from the catalogue.

[12] The official amounts in Euro are not yet available.

[13] See http//:www.bmgesundheit.de/presse/2001/2001/129htm.

[14] Two experts, Professors Cassels and Wasem, reviewed the working of RSA in SHI-funds in 2001; a new review on the RSA in substitute funds is ongoing. Cassels and Wasem recommend phasing in a morbidity-based risk adjustment over several years. In 2002, a comparative study of indicator models used abroad will be done. In 2003 self-governance has to decide on one of three models; if the parties cannot agree, the legislature will decide. During 2004 and 2005 data bases for managing risk adjustments will be established, in 2006 a new law is intended to be drafted, and by 2007 a morbidity-based RSA will be the only operational one in Germany.

[15] For detailed data, see Busse 2000a, pp. 72-79.

[16] This was accomplished by a regulation entitled, Sechste Verordnung zur Anpassung der Höhe der Vergütungen(literally, “sixth regulation for the adjustment of the amount of the remuneration”).

[17] Gesetz zur Einführung des Wohnortprinzips bei Honorvereinbarungen is the name of the law that sanctions this principle.

[18] EBM should not be confused with the English language abbreviation of EBM for evidence-based medicine.

[19] In 2003, DRGs are voluntary;in 2004, mandated; and in 2005-2006, DRGs will be phased in to meet the land-wide price level (Basisfallwert). Starting in 2007, each hospital will be reimbursed uniformly for medical services, according to the national DRG scheme.

[20] The Arzneimittelbudget-Ablösungsgesetz came into force on January 2002.

[21] Arzneimittelausgabenbegrenzungsgesetz (Arzneimittel-Sparpaket).

[22] Http://www.bmgesundheit.de/presse/2001/2001/137.htm.

[23] Norbert Blüm, minister of labor and social affairs under the Kohl government, had proposed a tax-financed program; however, the strength of opposition at that time prevented his program from being enacted.

[24] The Health Reform Act of 1988 marks the first recognition of the need for long-term care separate from medical services. SHI-funds began to pay for non-medical home care starting in 1991, and were replaced by LTCI in 1995.

[25] These are the categories according to the law on LTCI. For details, see “VI Benefits provided under the LTCI” in Vollmer, 2000, pp.12-13, 35.

[26] Vollmer (2000, p.8), the current undersecretary of health, said: “A distinction has to be made between social long-term care insurance... and compulsory private long-term care insurance.”

[27] For regional variations in the availability of such services, see Vollmer 2001, Appendix II.

[28] Vorblatt zum Regierungsentwurf eines Gesetzes zur Erganzung der Leistungen bei hauslicher Pflege von Pflegebedurftigen mit erheblichm allgemeinen Betreuungsbedard (Pflegeleistungs-Erganzungsgesetz – PflEG).

[29] Http://www.bmgesundheit.de/press/2001/2001/26htm

[30] Schröder, address to the annual meeting of the DGPPM-Kongreß (Deutsche Gesellschaft für Psychiatrie, Psychotherapie und Nervenheilkunde, or German Society for Psychiatry, Psychotherapy and Mental Health Sciences), Berlin, November 24, 2001.