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Margaret Murray is the CEO of the Association for Community Affiliated Plans, based in Washington, D.C.
As President Trump intensifies his battle with German Chancellor Angela Merkel over trade and NATO policies, he should pause to consider the lessons from another German Chancellor-Otto von Bismarck.
As President Trump intensifies his battle with German Chancellor Angela Merkel over trade and NATO policies, he should pause to consider the lessons from another German Chancellor-Otto von Bismarck-who also took on the entrenched government of the time to remake it in his own image. In particular, the Iron Chancellor was the architect in 1883 of many of the main elements of the German healthcare system today. As President Trump continues his undermining of the ACA through the promotion of short-term, limited-duration plans, he would be well-served to study the German health system. American policy makers should look at the fundamental characteristics of the German healthcare system-such as risk adjustment, an individual mandate, comprehensive set of required benefits, private providers and hospitals, and a robust competitive insurance marketplace-as they work to improve the current insurance system in the U.S.
What Bismarck built
Bismarck built the world’s first national social insurance system on a foundation of communal solidarity to respond to working-class demands for higher wages and expanded rights. The current German system, in place for nearly 135 years, remains grounded in the fundamental principles of solidarity and self-governance that Bismarck developed which has led to a stable business climate for the insurance industry and providers. The German health insurance industry is a competitive market-oriented system with significant governmental oversight to ensure a fair and competitive market. All residents of Germany are required to have health insurance. Nine in 10 receive their insurance through statutory insurance companies, known as Sickness Funds, purchased through their workplace. Employers pay 7.3% of the employee’s wages to the Sickness Fund of the employee’s choice for individual and family coverage. The employee pays a similar amount to the Sickness Fund plus an additional varying amount of around 1% of income, which fosters price-based competition among the Funds.
All 110 Sickness Funds are required to provide a minimum benefit package that includes hospitalization, physician care, pharmaceuticals, maternity care, and mental health coverage similar to the Essential Health Benefits that are required to be offered in the marketplaces under the ACA. Sickness Funds can provide additional benefits such as gym memberships and travel immunizations, similar to Medicare Advantage. The short-term, limited-duration plans proposed by the Trump Administration will not be subject to the Essential Health Benefits requirement, making them certainly cheaper but ultimately not providing the coverage that people will need should they become sick or injured.
German outcomes are favorable compared to the U.S. on cost, access, and quality while German utilization is typically higher than in the U.S. According to the OECD Germany spends only 11.3% of GDP on healthcare compared to 17.2% in the U.S. A Commonwealth Fund analysis of 10 Western countries ranked Germany second in people’s access to care while the US ranked last. Germany’s infant mortality rate was 3.2 deaths per 1,000 live births-almost half the U.S. rate of 6.0. Even though its overall percentage of GDP devoted to healthcare is low compared to the U.S., Germany has above-average utilization for hospital discharges, consultations, hospital bed days and all-cause readmissions compared to the U.S. as well as to eight other high-income countries.
The German system rests on the concept of social solidarity. Bismarck realized that anyone at any time, regardless of current needs, could become part of a family with a profound need for healthcare. Thus, the system both mandates insurance coverage for all and sets the statutory premiums based on income, capped at the higher end of the income spectrum. The German system of solidarity ensures that the young pay for the old, the healthy for the ill, small families for larger families and those with higher incomes pay for those with lower incomes. The repeal of the individual mandate in the U.S. undermines this fundamental insurance concept that non-users today subsidize users. Over time non-users become users who are, in turn, subsidized themselves.
President Trump and his advisors would be well-served to learn from and follow in Bismarck’s footsteps to shore up the individual insurance market, which may be headed for a meltdown in the next few years thanks to the demise of the individual mandate and the resurrection of short-term, limited-duration plans that could bifurcate the market between the sick and healthy. Like Bismarck in 1883, the U.S. needs to create a stable insurance market to ensure the stability of its workforce and families.
Meg Murray, MPA, is the CEO of the Association for Community Affiliated Plans and also serves as an editorial advisor for Managed Healthcare Executive. She held a Federal Chancellor Fellowship through the Alexander von Humboldt Foundation in 1993 and again in the summer of 2018.