German Health Care Shake-up Draws Fire

German Chancellor Gerhard Schröder on Monday got a much-needed shot in the arm for his ambitious reform agenda when his coalition government of Social Democrats and Greens struck a compromise with the conservative opposition after marathon negotiations on cutting back costs and streamlining one of the world’s most expensive health care systems.

The new reform agreement, which will force patients to pay more for treatment and reduce public heath insurance coverage for several services such as dentures and health spa visits, aims to slash costs by €9.9 billion ($11.23 billion) next year, €5.8 billion of which will come through increases in health insurance premiums for employees and co-payments for doctors' visits. Overall savings are expected to further rise to €23 billion by 2007.

The deal marks the largest overhaul to Germany's public healthcare system since unification in 1990. Germans pay more for healthcare than any other nation apart from the United States and Switzerland. Last year a cash shortfall of €3 billion in public health funds prompted Schröder’s government to find ways to save Germany’s cash strapped social system from buckling.

"A balanced compromise"

Both the government and the opposition have hailed the deal as a "balanced compromise." Olaf Scholz, general secretary of Schröder’s Social Democratic Party, said the deal would lead to a "new positive mood" about the chancellor’s Agenda 2010 reform package, a slew of structural, social and economic reforms aimed at shaking-up the country’s generous social system and making it accessible to future generations while at the same time resuscitating the sputtering economy.

Speaking after the latest compromise reached with the opposition, German Health Minister Ulla Schmidt (photo) stressed on Tuesday that "crusty old structures" would be broken by the new agreement. Horst Seehofer, the opposition Christian Democratic Union spokesman on healthcare issues said the cost burden would now be distributed equally between insurance premium payers, the pharmaceutical industry, doctors, public health funds and income tax payers. "All are in the same boat," he said.

Schmidt added some of the changes were "revolutionary" and would increase health sector efficiency as well as lower labor costs for employers at a time when unemployment is over 10 percent and the economy is barely expected to grow for the next year.

Employers: Deal doesn't go far enough

Despite general political endorsement of the latest reform plan -- expected to be tabled in the parliament in September and implemented in January-- a number of critics have emerged.

Employers’ associations have long complained about soaring non-wage labor costs, of which health fund contributions represent a considerable chunk. The new deal foresees health fund contributions -- split equally between employers and employees -- falling to 13 percent of gross wages by 2006, from 14.4 percent today.

Another key aspect of the deal eliminates so-called "sick pay." Currently, after one week of illness, Germany’s public health funds cover an employee’s wages for up to six weeks. Under the new agreement starting 2007 employees will be required to take out independent policies to cover illness-related wage losses.

Despite the deal's provision to ease pressure on employers, many groups are still unhappy with the plan. Dieter Hundt, president of the Confederation of German Employers’ Associations said the reform compromise didn’t go far enough and added it was a matter of too little too late.

Hundt said the slashing of health fund contributions to 13 percent of gross pay in 2006 would come too late to significantly contribute to an improved labor market. Similarly, he called for a "sick pay" exemption on the part of employers to take effect immediately and not in 2007 as planned. Hundt also called for employees to personally shoulder costs of dental care and private accidents and reduce the employer contribution to public health care funds.

Drug makers unhappy with plan

The pharmaceutical industry and markets also reacted negatively to the plan, with drug shares of Bayer and Schering AG slipping after the news. The move is expected to cost pharmaceutical companies about €1 billion next year.

"It will lead to a noticeable effect on revenues," Peter Duellmann, analyst at Sal. Oppenheim told Reuters on Tuesday. "Drug firms will realize innovation is not being encouraged in this country. Germany as a location for drug research will become less attractive in international comparison," he said.

"A pure rip-off" for patients

Social organizations have also slammed the latest agreement, saying that it places the lion's share of the cost burden on ordinary patients and wage earners who in the future will have to dig deeper into their pockets to pay for services and treatment.

The plans lay down that apart from work-related sickness benefits, other services such as fitting dentures, coverage of over-the-counter prescriptions and expensive fertility-related treatments like artificial insemination and sterilization procedures would also be dropped from the realm of public health funds. Instead, employees would have to take out additional policies for that either with private insurance companies or get it covered independently by public health funds. Patients will also have to pay up to €10 per quarter to visit the doctor as well as for every day spent in a hospital for a maximum of 28 days a year.

Walter Hirrlinger, president of the VdK social organization, said the healthcare reforms would place a clear burden on insurance payers and their families. "It’s a pure rip-off," he told the daily Berliner Zeitung. "Patients pay additional money, employers are relieved and doctors, hospitals and the pharmaceutical industry come away unscathed. That’s not a reform, it’s pulling the wool over the public’s eyes."