Saturday, November 9, 2013

Health Insurance Blues

When Red Baron visited Washington the other day the government was shut down. Many people told me that the reason for the shutdown was that members of the Tea Party were willing to vote on  the US budget only if President Obama agreed to curtail the expenditure of the Patient Protection and Affordable Care Act. I do not understand American politics well but the introduction of the German health insurance system in 1881 was highly political too.

Following the first unification of Germany in 1871 the economic boom of the Gründerzeit (period when many industrial firms were founded in Germany) based on an accelerated industrialization created a few rich industrialists and a growing proletariat. By articulating the misery of the industrial workers, the Social Democratic Party  became a political power.
Bismarck at his desk (©Wikipedia)
Chancellor Bismarck was not pleased and convinced the other parties in the Reichstag to pass the Gesetz gegen die gemeingefährlichen Bestrebungen der Sozialdemokratie (Law against efforts of the Social Democrats that are dangerous to the public) in 1878.  Although the Social Democratic Party remained outlawed as an organization until 1890 its members continued their agitation and successfully stood for elections to the Reichstag and state parliaments as private candidates. Bismarck, the ancestor of all Realpolitiker (political realists), well saw that "to take the wind out of the socialists' sails" social improvements for the working proletariat were necessary. He convinced Kaiser Wilhelm I, by then 84 years old, to send an Imperial Message to the Reichstag (parliament) on November 17, 1881. The legislature shall pass laws covering the workers financially in cases of medical treatment, workplace accidents, invalidity, and old age.

The Krankenversicherung der Arbeiter (Law concerning the health insurance of workers) came into force on December 1,1884, once the necessary infrastructure of statutory health insurance funds (Orts-, Betriebs-, and Innungskrankenkassen) had been set up. The accident insurance followed in 1885, the old-age and invalidity insurance was introduced in 1891.

The so-called gesetzliche Krankenversicherung (statutory health insurance) became compulsory for workers with an annual income of less than 2000 marks. The premium in 1885 was 1.92% of income of which the employee paid 2/3 and the employer 1/3. By 1920 the contribution was 4.5%, in 1950 6%, in 1990 12.53%, and is now 15.5% with the employee paying 8.2% of his basic salary and the employer covering 7.3% of the premium. The income threshold in 2013 is 55,000 euros per year. Presently 89% of the German population is covered by statutory health insurance, the others are privately insured. This has only been true since 2009 when health insurance became compulsory for all Germans. Those who earn more than the income threshold and thus are not entitled to statutory health insurance must take out a private one. To this end private health insurance companies must offer entry contracts offering the same catalog of benefits as the statuary health insurance. This sounds rather complicated but that is not the sticking point.

You surely noticed the increase of the premium as well as the income threshold for the statutory health insurance system in Germany. Many governments in the past tried to cap the costs of medical care. In vain. Doctors use more refined methods, prescribe new expensive drugs, and employ costly diagnostic tools that must be amortized. The positive effect is that we are all getting older than our grandparents, the negative effect is a steady increase in costs without a brake. The best measure of limiting the costs in Germany so far was a reduction in the number of annual visits to the doctor. This was accomplished by the introduction of a Praxisgebühr, some sort of an entrance fee to the doctor's office. All patients with statutory health insurance must pay 10 euros per quarter in cash and at the counter. In a last gasp before they were voted out of the Bundestag (parliament) the Liberals had the rather bureaucratic Praxisgebühr abolished on January 1, 2013. Since then the number of visits to the doctor has already increased by 5%.

I read figures that ObamaCare will charge the US-budget with $940 billion over the next 10 years. Higher taxes should finance $400 billion whereas greater efficiency in Medicare should pay for $483 billion. You may read in Wikipedia: A 2011 comprehensive Congressional Budget Office (CBO) estimate projected a net deficit reduction of the US-budget of more than $200 billion during the 2012–2021 period: it calculated the law would result in $604 billion in total outlays offset by $813 billion in total receipts, resulting in a $210 billion net reduction in the deficit. The CBO separately noted that while most of the spending provisions do not begin until 2014, revenue will still exceed spending in those subsequent years. This argumentation is illustrated in the following chart.

All these estimations are full of uncertainties and are based on figures that were known in the years 2010 and 2011. Note the difference between 2010 and 2011 with the latter estimate being significantly higher in the following years and who knows what will be the situation beyond the year 2017?. Does the chart underline the known fact that the costs for health care will have only one direction: going up?

1 comment:

  1. Nothing is as worthwhile as staying healthy, but you should also be prepared for the odd situations and severe illness, so be sure of buying health insurance, as it helps meeting the healthcare expenses much easily. - Contact Comovo for more info.