NCPA - National Center for Policy Analysis


July 7, 2006

Germany's health-care scheme, like the rest of its welfare system, dates back to the Iron Chancellor.  Bismarck's original idea was to provide a safety net for the poorest of the poor.  Now, 120 years later, it's up to a modern-day Chancellor, Christian Democratic Angela Merkel, to fix the system, which long ago spun out of control, says the Wall Street Journal.

Financed though payroll taxes, it is constantly under-funded and has become a drag on the labor market.  What may have worked in Bismarck's time, when life expectancy was around 40 and coverage reached only 20 percent of the work force, is no longer manageable with 90 percent of the population enrolled and Germans living much longer.  To help finance an expected shortfall of about $9 billion next year, the government simply decided to raise contributions.

Germany's double-digit unemployment is one reason the health system is chronically short of funds, says the Journal:

  • With so many people out of jobs, fewer workers are available to pay into the system.
  • The standard solution is to raise contributions paid by employers and employees, which have almost doubled since the 1970s.
  • But this only worsens the job situation as it makes it more expensive for companies to hire.
  • At the moment, it costs 14.2 percent of a worker's gross pay (14.7 percent after Merkel's "reform"), half of it presumably paid by the employer.

It's not that there isn't enough money going into the system.  Germany already spends around 11.1 percent of gross domestic product (GDP) on health care.  Only the United States and Switzerland spend a larger share of their national output, 15 percent and 11.5 percent of GDP respectively.  Inefficiency is the problem.  An independent government advisory group concluded five years ago that patients are simultaneously "over-, under- and mistreated."  Not much has changed since then, says the Journal.

Source: Editorial, "Bismarck's Health Plan," Wall Street Journal, July 7, 2006.

For text (subscription required):


Browse more articles on Health Issues