Germany reaches agreement on small-scale health reform

Germany’s grand coalition has hammered out a reform of the country’s underfunded health care system, which relies on a mixture of contribution raises and, for the first time, tax funding.

The deal was presented by Chancellor Angela Merkel at 4 am on 3 July 2006, after months of tough discussions between the social-democrat and conservative partners in the Coalition. The talks culminated in an all-night round on 2-3 July 2006. 

The challenge that Merkel’s government is facing is to reform a highly inefficient system which dates back to the 19th century and which costs around 140 billion euros each year. Traditionally, the German health systems is co-financed by the insured themselves and by employers. Rising health expenditure has led to the country having some of the highest  non-wage labour costs in Europe. These are considered a major obstacle for Germany’s economic recovery and for the country’s meeting the Lisbon objectives. 

For the first time in the system’s 150-year history, tax revenues will be used to co-finance it. The government will throw in 1.5 billion in 2007 and 3 billion per year starting in 2008, mainly to co-finance children’s health insurance. From 1 January 2007 onwards, the insured will also have to pay 0.5 percentage points more in health care contributions. The raise will hit them at the same time as a planned increase of the VAT by three percentage points. 

Critics said the reform was either not far-reaching enough or even, as Dieter Hundt, president of the German employer’s association, said: “diametrically opposed” to the Merkel government’s declared objective of cutting non-wage labour costs and creating jobs. Finance minister Peer Steinbrück also had to admit that funding had not yet been answered. 

Subscribe to our newsletters