WIHI

Germany: #3 in the 2021 World Index of Healthcare Innovation

Germany’s universal private insurance system, founded in 1883, stands out for its remarkable fiscal sustainability.
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Introduction

Germany’s health care system is well-rounded and stable, ranking #3 in the World Index of Healthcare Innovation with an overall score of 59.79, below the Netherlands (#2, 62.99) and above Ireland (#4, 56.67). Germany excelled most in the categories of Fiscal Sustainability (#2, 78.48) and Choice (#2, 70.25), aided by its balanced budget amendment and a wide range of private-sector payers and providers to compliment the Index’s best access to innovative and affordable drug treatments. Germany also ranked 8th in Science & Technology (37.69) and 13th in Quality (52.73).

Background

The German health care system was the first to provide widely subsidized modern-style health insurance, at the initiative of chancellor Otto von Bismarck in 1883. Along with the policy goal of expanding health coverage, Bismarck and Emperor Wilhelm I were seeking to placate restive Social Democrats, thereby strengthening solidarity within the recently unified German Empire, which had been established in 1871 after the end of the Franco-Prussian War.

Many other countries in central Europe — most notably the descendants of the Austro-Hungarian Empire such as AustriaHungary, the Czech Republic, and Slovakia — also derive their health care systems from this “Bismarckian” model. Indeed, the stability of the German health care system is remarkable when one considers Germany’s turbulent 20th century history.

Under the original Bismarck system, employers contributed one-third of the insurance premiums, and employees contributed two-thirds. Enrollment was mandatory. In 1885, 10% of the population had health insurance; this rose to 51% in 1925, and began approaching 90% in the 1980s. The 1883 system began with industrial workers and skilled craftsmen, and over decades was gradually extended to all Germans. East Germans were migrated back into the traditional Bismarckian scheme from the East German socialist system after reunification in 1990.

An important reform took place in 1993, after reunification, when the federal government gave individuals the right to choose among competing “sickness funds” — private, self-governing insurance companies — as opposed to being assigned a fund by one’s employer.

Vigorous competition among insurers has led to consolidation, due to the imperative for insurers to achieve economies of scale. In 2020, there were 105 sickness funds in the country, down from 420 in 2000 and well below the historical peak of over 20,000 prior to World War I.

Germany also has a robust innovative health care sector, led by Bayer, Merck KGaA, Boehringer Ingelheim, Fresenius, Siemens, and the German units of Sanofi, a large Franco-German pharmaceutical company. In addition, German-based BioNTech developed the world’s first approved mRNA vaccine against SARS-CoV-2, a key weapon in the fight against the COVID-19 pandemic.

Quality

At #13, Germany’s Quality, while respectable, ranks lowest relative to its performance on other dimensions. While its ranking in measures of preventable disease could be improved (#24) and its pandemic response is hindered by a slow vaccine rollout and heavier lockdowns (#21), Germany features a robust array of private doctors and hospitals, constituting a world-class health infrastructure (#5) that also scores well on patient-centered customer care (#8).

Choice

At #2, Germany sits among the elite countries in Choice. As the largest health care market in Europe, Germany often gains access to new treatments (#1) faster than its neighbors and features the Index’s best access to biosimilars. That Germany outpaces the U.S. in access to new treatments is notable, given Germany’s relative effectiveness at reining in drug costs. In Germany, drug companies enjoy free monopoly pricing in the first year after marketing approval; subsequently, they must negotiate prices with the National Association of Statutory Health Insurance Funds (Gesetzliche Krankenversicherung Spitzenverband). In other words, the monopoly pricing power of the drug company is balanced by the ability of the insurers to jointly negotiate.

While health insurance is somewhat more expensive than other countries in the Index (#21), Germans value personal choice among a wide range of insurers and providers, and are able to make informed choices with their out-of-pocket health care dollars, contributing to a high ranking in freedom to choose health care services (#4).

This article is part of the FREOPP World Index of Healthcare Innovation, a first-of-its-kind ranking of 31 national health care systems on choice, quality, science & technology, and fiscal sustainability.

Science & Technology

Germany’s ranking of #8 overall in Science and Technology largely reflects its leading role in academic research, fueled by its university system and the world-renowned Max Planck Institute. In addition, Germany ranks among the elite in scientific discoveries (#6), based on recent Nobel laureates in chemistry and medicine/physiology as well as a high degree of oft-cited research. In addition, Germany ranks highly in medical advances (#9), based largely on a regulatory environment conducive to approval of innovative drugs. Despite a high rate of electronic medical record adoption, Germany’s #15 information technology ranking reflects an internet and communications infrastructure that falls short of expectations, preventing the country’s citizens from fully taking advantage of digital health tools.

Fiscal Sustainability

Germany stands out again in the Index at #2 for Fiscal Sustainability. Germany has the lowest public health spending as a percentage of GDP of all countries in the Index (0.74% in 2019), a direct result of the nation’s universal private health insurance system. In addition, the growth in public health spending (#14) has remained relatively steady over the last 10 years. However, Germany’s rating on national solvency has slipped (#17), with a 2019 debt-to GDP ratio increasing from about 40% to 59.5% in one year.

ABOUT THE AUTHOR
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Resident Fellow, Health Care