Despite different health care systems in Germany and the U.S., similar debates and health policy questions can be identified in both countries. Some common issues are the role of the private insurance market and competition in health care. In the U.S., the 2010 Affordable Care Act reform has been widely considered as a step toward a more state-governed health insurance market, foreseeing a stricter, more direct regulation of private health insurers. From a German economist’s point of view, this development is very interesting: Stricter regulation of private insurers has also taken place in Germany[1] and a controversial debate about the superiority of the Social Insurance System over the private health insurance system frequently takes place. Over the last several years, constantly-rising premiums in private health insurance have fuelled this debate.

Private Health Insurance in Germany…

Therefore, the “paradigm change” in U.S. health policy is followed attentively in Germany. In Germany, private insurance as a basic insurance covers only around 10 percent of the population. As far as the basic package of health insurance is concerned, most people (the other 90 percent) are mandatorily insured in the Social Health Insurance. Only high wage income earners, self-employed, or civil servants can opt for the private system, where they get individual contracts at individual risk rated premiums. Individual risk underwriting only takes place once, before signing the insurance contract. Contracts are long term, so individuals do not face any premium risk.

…and in the U.S.

In contrast to Germany, the private health insurance market in the U.S. is larger; it is the main health financing system for people under 65. Most individuals are insured via their employers, who either self-insure or buy a group insurance from a private insurer. In either case, the employees do not pay individual rated premiums, but an average group premium. Individuals who do not get access to a group insurance policy have to insure independently with a private insurer. Regulation of the private insurance market differs between states; in most states, those applying for individual health insurance have to pay risk-rated premiums before they are enrolled in the insurer’s risk pool.[2] The individual’s health status including pre-existing conditions is considered and reflected in the individual premium.

The individual private health insurance market is a residual market, alongside employer-sponsored health insurance. The Affordable Care Act regulations—aimed at increasing the coverage rate in the U.S.—focus on the individual (and small group) health insurance market (in combination with Medicaid expansion and premium subsidies). The focus on the individual market is understandable if one considers the dearth of options for today’s uninsured.

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On 23 March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into law. The result of months of political conflict and compromise, this law entails a comprehensive reform of the U.S. health care system meant to expand coverage for those with and without insurance and curb the rapid growth of health care spending as a proportion of GDP. The law also includes a timeline for phasing in new regulations.

Expanding Coverage and Improving Performance

The Affordable Care Act aims to make health insurance more accessible to the uninsured and increase coverage for the under-insured. In order to do so, the law:

• Creates an individual mandate, which requires all individuals who can afford it to purchase health insurance or pay a fine. This provision is meant to cover the costs created by other provisions of the law for insurance providers.
• Establishes “Affordable Insurance Exchanges,” which simplify consumers’ search for health insurance and should instigate more competition, and therefore lower prices, between insurance providers.
• Implements a number of requirements on insurance providers which make it more difficult to deny coverage to those seeking to purchase health insurance.
• Provides tax benefits and additional incentives to small businesses that purchase insurance on behalf of their employees.
• Expands Medicaid and Medicare programs.
• Eliminates lifetime caps on insurance spending.

Cutting Costs

Furthermore, the Affordable Care Act is meant to reduce the amount spent on health care. In order to do so, the law:

• Incentivizes better care coordination for health care providers, meant to decrease redundancies in health care provision.
• Implements a number of requirements and rules meant to make Medicare and Medicaid more efficient.
• Requires private insurers to cover preventive care. The law also expands Medicare and Medicaid benefits for preventive care.
•  Establishes a number of organizations and funds that seek solutions in bringing down the cost of health care.

Criticism

The Patient Protection and Affordable Care Act has garnered significant criticism, mostly targeted at the individual mandate, which critics say is unconstitutional, as it requires individuals to purchase a service. As a result, the reform has become a major issue in the upcoming presidential election and has faced several legal challenges. The law is currently under review by the Supreme Court, which will ultimately judge its constitutionality.

For more detailed information on the Patient Protection and Affordable Care Act, see:

http://www.healthcare.gov/

http://www.healthcare.gov/law/timeline/index.html

http://www.healthcare.gov/law/features/index.html

United States

Coordinating Care

U.S. health care providers are heavily divided by state and local regulations, specialization, and ownership, exacerbating the difficulty of a common information-sharing system.

The United States’ heavily fragmented, privatized system explains both its success in applying preventive and patient-centered care and its failure in managing long-term care and coordination efforts.

• Because health care providers operate with a large degree of independence and receive payment directly from their patients’ insurers, they have significant incentives to provide excellent up-front care and build relationships with patients in their specific area.

• Because of their independence and under-utilization of shared information systems, providers face difficulties in coordinating care between facilities and institutions, especially across fields.

Access

The United States lacks a universal health system, resulting in significant access problems for the uninsured and under-insured.

Specialized and primary services are very quickly accessible for insured patients

Efficiency

Highest health expenditure per capita in the OECD ($7,290 or 17.4% of per capita GDP, 2009).

Poor performance on administrative costs, use of information technology, re-hospitalization, and duplicative medical testing.

• Because hospitals are required to treat uninsured patients in life-threatening condition, they must charge insurers more to cover costs of uninsured patients.

Equity

46 million Americans (about 15 percent) live without health insurance.

Low-income patients, even when insured, are acutely aware of the cost of health care, and are more likely to forgo health services due to cost.

Germany

Coordinating Care

Like in the U.S. system, providers are divided and specialized without a common information-sharing system, leading to problems in gathering and maintaining patient records.

Access

Because of the universal nature of Germany’s health insurance system, greater demand exists for health care professionals, resulting in longer average waiting periods for primary care physicians than in the United States. Remarkably, waiting periods for specialized care are not significantly longer.

Efficiency

4^th highest health expenditure per capita in the OECD ($4,218 or 11.6% of per capita GDP).

Demographic changes: as Germany’s population ages, the increased elderly proportion of the population will drive up demand and cost for health care services, leaving little foreseeable prospect for easy cost limitation methods.

The United States has had a more privatized system than most European countries, with a relatively low proportion of health insurance provided by public programs. According to the Commonwealth Fund, in 2010 “56% of U.S. residents received primary coverage through private insurers,” while 27% “were covered under public programs.” The remaining 16% lacked health insurance entirely.

The two largest public health insurance programs differ in the way that they are administered and funded.

Medicare is the federal government’s insurance program for seniors and other groups.

• Paid for by payroll taxes.
• Distributed by the federal government to individuals over the age of 65, with disabilities, and other qualifiers.
• Eligibility determined by federal government.
• Federal government sets coverage and negotiates with private and public health care providers to determine eligibility.

Medicaid is a combined federal and state government means-tested health insurance program.

• Paid for by state and federal taxes.
• Distributed to individuals by the states within broad federal guidelines.
• Eligibility determined by states, following some federal standards.
• State governments set coverage within national guidelines and negotiate with private and public health care providers to determine eligibility.
• State Children’s Health Insurance Program (SCHIP) is an expansion of Medicaid and covers children in families deemed underprivileged who do not qualify for Medicaid based on income.

Most Americans purchase health insurance from private insurance companies, usually through their employer. Private health insurance is regulated differently in every state, making generalizations about the U.S. private health insurance market as a whole difficult.

Providers

Overall, the provision of health care in the United States is a largely private, decentralized affair, with most health care providers falling under private ownership and no significant federal presence.

Health practitioners enter the market by gaining certification by a private organization, which allows them to join an existing practice, open their own practice, or practice within a hospital.

Practices and hospitals are mostly private, but some local and state governments fund publically-owned hospitals and public practices.

In Germany, individuals purchase insurance through a system characterized by public-private partnership. Federal law requires all Germans to hold health insurance, but does not provide coverage directly. In the German system, about 85 percent of residents purchase heavily regulated, non-profit insurance referred to as Gesetzliche Krankenversicherung (Statutory Health Insurance, GKV), approximately 10 percent buy private insurance, and the remaining 5 percent fall into other insurance schemes.

Gesetzliche Krankenversicherung (GKV) covers the majority of Germans.

• All Germans earning under a yearly adjusted rate (approximately €50,000 per year) are required to purchase GKV from a Krankenkasse.
  • Individuals pay for insurance based on their income, paying 8.2 percent of their gross wages up to €44,550 (in 2011) while their employer contributes an additional 7.3 percent of their gross wages up to €44,550 (in 2011).
• Krankenkassen (Sickness Funds) are heavily regulated, non-profit insurers who are legally required to accept all applicants and are permitted to sell health insurance (GKV).
  • Traditionally, Krankenkassen were associated with industries, meaning that individuals would purchase GKV through the Krankenkasse in their industry. Today, individuals have greater freedom to choose between Krankenkassen, though they must still buy through their employer.
• GKV includes complete coverage of most health needs, with the exception of long-term care.
  • GKV does include long-term care, but benefits are usually insufficient and most choose to supplement GKV with private insurance.
  • A council of representatives from the health care industry, the Gemeinsame Bundesausschuss, has legal authority to determine what services must be included in GKV.
• Providers negotiate with Krankenkassen on a regional basis to determine eligibility.

Civil servants and the self-employed, who are not covered by the employer-based GKV system, purchase private insurance. In addition, individuals earning above approximately €50,000 per year are permitted to opt out of purchasing GKV and purchase private health insurance instead. Private insurance is also heavily regulated, but is generally more flexible and more expensive than GKV.

Providers

Health practitioners enter the market by gaining certification from legally mandated regional professional organizations. From there, practitioners may open a practice or join an existing practice, which are mostly private. They may also choose to work as salaried doctors at hospitals.

Hospitals are mostly publicly-owned, accounting for about half of all beds, while non-profit private hospitals make up about a third of all beds.