Today, as the first in an ongoing series of updates on what’s new in international health care, I want to take a look at recent reforms in Germany. As a whole, we Americans pay precious little attention to what’s going on in other countries unless the news involves war or David Beckham. I’m hoping to buck this trend a little.

The big story in German health care is Chancellor Angela Merkel’s late 2006 reform that resulted in series of changes that, for the most part, were implemented in April of last year. Below, a look at these reforms; but first a little political background: Merkel heads up a "grand coalition" government, i.e. one where the largest political parties govern in collaboration due to inconclusive election results (a relatively common occurrence in parliamentary systems). In other words, social democrats and conservatives are in a constant tug-of-war. The new plan reflects this fact, juggling solidarity and competition in equal parts. And while this might sound like a good balance, virtually no one is satisfied with the compromise.

On to the big changes:

Mandatory Health Insurance: Many folks think that European health care means, by definition, universal public coverage. Not so. Germany has a public/private system, and before the April 2007 reform, public coverage was only compulsory for those within a certain income range (roughly speaking, working and middle class citizens). Higher-income and self-employed Germans, along with public servants, could opt-out of SHI by purchasing private insurance. They could also forgo insurance all together.

Due to this set-up, until recently some 200,000 Germans were uninsured—about 0.2 percent of the population. As of April ’07, all Germans must purchase health insurance. In the past, private insurers (who traditionally offer plans with many bells and whistles) had the right to refuse coverage for high-risk individuals. Now, they must take all comers. In this way, the new German plan is like Hillary Clinton’s proposal for health care reform: insurers can no longer shun the sick but everyone must sign up—citizens cannot wait  until they are sick to enroll.

Private insurers also must now offer basic coverage plans that are
comparable—in both benefits and premium cost—to the basic SHI public
insurance plan. The idea is that this new cheaper private plans will
attract those who opt-out of the public system but don’t want to pay
the higher premiums connected to more expensive private plans.

More Competition among Sickness Funds: Sickness funds are the
organizations that deliver SHI-based coverage; in essence, they are
publicly-funded, non-profit insurance companies. They are financially
self-sufficient and funded through premiums that are split 50-50
between employers and employees. Thanks to reforms in the early 2000s
that let Germans choose their sickness funds (they used to be assigned
a fund based on things like geography, income-level, or profession),
the number of funds have steadily declined over the years. Patients
have left funds that performed poorly and joined better ones, while
some funds have merged. Last year’s reform makes it even easier for
sickness funds to compete by allowing them to offer a wider array of
plans (including plans with lower premiums but higher deductibles)
while also opening "closed" sickness funds (e.g. that were originally
limited to one profession or one region) to all SHI insurees.

Coordination of Care: Traditionally, Germany has had a pretty
fragmented system of care delivery thanks to dual reimbursement
systems. Outpatient care is on a fee-for-service schedule, with
providers belonging to one of 17 regional SHI provider associations,
which in turn contract with the head of sickness funds. Inpatient
reimbursement is based on a centralized "diagnosis-related grouping"
system.   This system relies on an institutionalized body of knowledge
as to the most effective—and cost-effective—way to address certain
groups of diseases. It’s informed by clinical, demographic, and
economic research and stipulates the best course of action for
particular medical situations. Reimbursement is based on how well
providers stick to this system.

To help bridge this divide between inpatient and out-patient care,
since 2004 Germany has been pushing for "integrated care" contracts.
These are negotiated frameworks that include various health care
providers, sickness funds, and patients while consolidating the
financing, administration, and delivery of care. The 2007 reform adds
more funding to get these contracts off the ground and also extends the
contracts to non-medical specialists like therapists—the idea being
that integrated care should be coordinated to include treatments
outside of traditional medicine.

Central Health Fund and Unitary Contribution Rate: At the
moment, sickness funds set an individual’s contribution rate–how much
of his or her income goes to premiums—based on income (in private
insurance, premiums are based on risk profile). Each sickness fund sets
its own contribution rate, usually between 12 percent and 15.5 percent
of a person’s gross earned income. But the ’07 reform sets one
contribution rate for all sickness funds, which will likely clock in at
slightly more than 14 percent of an individual’s income, split between
employer and employee (with employees paying slightly more).

Instead of paying directly into the sickness funds, employers and
employees will contribute to the federal government’s new "central
health fund" (originally due in 2007, but now postponed until 2009)
which will take that money—along with tax revenue—and distribute
payments to the sickness funds. If a particular sickness fund doesn’t
get enough cash from the health fund it can charge its enrollees an
additional premium that is at most one percent of the insured party’s
income.

Pharmaceuticals: The ’07 reform lets SHI stipulate maximum
reimbursement amounts for patented pharmaceuticals based on
cost-benefit assessments, which for the first time, are required by law
to comply with international standards of evidence-based medicine. This
is an important step forward in reducing wasteful and ineffective
procedures, and something worth emulating in the U.S. Maximum
reimbursement rates will not apply to drugs that are proven to be
cost-effective or lack a therapeutic alternative. The reform also
requires a second opinion by specially qualified physicians whenever a
doctor wants to prescribe a drug that is expensive or considered risky.

So there you have it–the meat of recent health care reforms in
Germany. Note that the German system is becoming simultaneously more
centralized (insurance is mandatory, contribution rates will be
standardized, the creation of the central health fund) and more
competitive (opening of sickness funds, introduction of new plans,
creation of fluid integrated care contracts).

You might think that this is a testament to bipartisan consensus or
some sort of European pragmatism, but it’s actually the product of
partisan gridlock. This year there are elections in some German states,
so none of the grand coalition insiders wanted to give up too much
ground. Meanwhile, everyone wanted to delay the most structurally
radical element of the reform, e.g. the creation of the central health
fund.

So, as Thomas Mayer, the chief European economist at Deutsche Bank,
told the New York Times in 2006, for the time being, at least, the
German reform sticks with "the same old system" but with a few tweaks.
As a result, few are happy with the new status quo–because it’s
basically the old one. Excessive compromise has left no one happy.