Health Care and the Labor Market: Learning from the German Experience

Abstract

Many observers have begun to question the U.S. reliance on an employment-based private health insurance system. In thinking about the future of this system, it is instructive to examine the German experience. The German health insurance system is almost entirely organized and financed around the labor market. In recent years, the German labor market has changed in several ways. Among other changes, more German women now work, the proportion of retirees in the population has increased, the share of manufacturing in employment has declined, and the economy has become more open. These labor market changes have made it more difficult to organize health insurance around employment in Germany. Recent changes in the German health insurance system have, to some extent, decoupled health insurance from employment. This decoupling is likely to continue as the labor market changes further. We explore the implications of this experience for the United States.

Health Care Financing, Efficiency, and Equity

“…• participation in the programme is compulsory either by law or by the conditions of employment; or • the programme is operated on behalf of a group and restricted to group members; or • an employer makes a contribution to the programme on behalf of an employee. narrower than under broader scope general revenue financing (Amelung and Glied, 2003). Moreover, some social insurance systems cap the maximum contribution, reducing the progressivity of this financing mechanism.…”

Institutions, Interest Groups, and Ideology

“…In this sense, it opened the market to greater competition. Germany also implemented a separate payroll tax to retain coverage for pensioners (Amelung et al 2003). Thus, although Germany remains committed to universal coverage through a system of regulated, mandatory sickness funds, the strict link between employment and health benefits has been severed, and the funds are allowed to openly compete for business.…”

“…However, participation in sickness funds is mandatory, risk-rating is prohibited, and insurance plans are heavily regulated. Premiums are based on wages or income, not on health risk, and everyone is covered (Amelung, Glied, and Topan 2003).…”

The Influence Of The Labor Market On German Health Care Reforms

“…Close ties with the labor market originally secured such benefits as reduced administrative costs through employment-based coverage, reduced adverse selection, and centralized collection of payments. 1 During the economically stable 1950s and 1960s, these advantages of the system outweighed its weaknesses. As Germany's economic growth began to slow in the 1970s, though, the trade-offs became apparent.…”

“…Both reform options plan to extend insurance coverage to include currently exempt jobs and the privately insured, to strengthen the SHI's financial basis. The effects of the ACHI would reduce average contribution rates by 0.7 percentage points, balanced against an estimated rise of 0.1 percentage points 1 in contribution rates because of additional costs incurred. Under this scenario, all who enter the labor market would become members of the ACHI/SHI.…”