In Germany, the flat-rate health insurance premium (Gesundheitsprämie) is a reform concept under which a fixed contribution to a health insurance fund is to be paid by every insured person. Early on it was also referred to as a per-capita lump-sum premium (Kopfpauschale).
The Gesundheitsprämie would involve a fixed contribution to statutory (or compulsory) health insurance (Gesetzliche Krankenversicherung – GKV) – similar to prices for other goods and services– that everyone must pay and that is competitively determined by the health insurance companies. The Gesundheitsprämie would be supplemented by a tax-financed social compensation that would subsidise the premiums of low-wage earners, funded by those who earn more via the tax system. Since the GKV is presently financed in Germany by earnings-dependent contributions, the introduction of the Gesundheitsprämie would mean a systemic change.
The discussion of this system transformation has been very heated in Germany. Most economists are in favour of premiums that are not wage related since they would have fewer distorting effects, are better positioned to cope with demographic change, are more transparent and reduce the redistribution effect of health premiums or in the ideal case eliminate them.
In Germany most residents are covered by statutory health insurance. The GKV system was introduced more than 120 years ago (1883). Initially, the equivalence principle applied: health insurance provided sick pay, i.e. it was a wage replacement and increased in line with earned income. This explains the dependence on earnings of present contributions to health insurance in Germany. With the expansion of the services of health insurance to cover medical care and prescription costs in 1885 (only two years after introduction of the GKV), the equivalence principle was hollowed out for the first time as these costs are independent of earnings. Today sick pay only amounts to a fraction (ca. 6%) of health insurance costs. The Scientific Advisory Board of the German Federal Ministry of Economics has stated that “at the latest with the introduction of the continuation of wage payments for the first weeks of illness by the employer, introduced in 1970, the equivalence principle became irrelevant” since this further reduced the importance of sick pay; the Board described the earnings-related GKV contributions as a system of income redistribution. The fact that the children and non-earning spouse of an insured person in the GFK are covered free-of-charge further underscores this redistribution aspect.
In a market economy, income arises from the supply of factors of production such as labour, capital and land. Income is spent on goods and services that have market prices. The prices have a basic control function without which the economy cannot be organised. Since the prices do not differ according to the personal characteristics of the customers, varying nominal income is at the same time varying real income. If for all goods and services a price was paid that is based on earnings, all real income would be identical. Then the socialist principle would be realised, and the economy would collapse.
These considerations alone lend fundamental support to a Gesundheitsprämie, but there are additional advantages.
Transparency: Insured persons can compare the premiums for health insurance more easily if they are in the form of prices. With enhance transparency, the willingness to change health insurance providers will also increase, and with it also the competition between health insurance companies that will lower costs and improve quality.
Elimination of the tax on labour: The Gesundheitsprämie eliminates the tax on labour that is currently imposed implicitly by GKV premiums. Presently whoever works and earns more must pay more for health insurance, which considerably reduces the incentive to work.
Coping with demographic change: The Gesundheitsprämie is in a better position to cope with an ageing population. If the current system of health insurance contributions is continued, premiums will rise sharply in the coming decades as the number of contributors declines. The problems of statutory pension insurance and the burden on the state would be intensified by the relative decline in the tax base.
More efficient income redistribution: Income redistribution would be shifted away from the GKV to the tax-transfer system that includes all residents. In addition, not only wage income but all sources of income would be taken into consideration. Thus the assessment basis would be larger than for the GKV. The system of social compensation would only subsidise the truly needy and not households that have above-average total earnings even though many of their members receive no wage income. An element that would remain is a risk redistribution from the healthy to the sick.
Critics of the Gesundheitsprämie maintain that managers would then pay the same premium as their secretaries. This would in fact be the case, but the criticism is misguided because the same price for everyone also applies with regard to bread, haircuts, automobiles and for virtually all everyday goods and services. Low-wage earners and higher-income groups also pay the same price for the energy they use, their living space and their food. The accompanying social compensation system is also ignored by the critics. In contrast to the present GFK system, this would include the participation of all inhabitants and greater portions of income.
"Gesundheitsreform 2010: Einstieg in den Systemwechsel?“, contributions by Philipp Rösler, Jochen Pimpertz, Friedrich Breyer, Wolfgang Greiner, Gebhard Kirchgässner and Jürgen Wasem, ifo Schnelldienst 63 (16), 2010, 3–21 ( Abstract ).
"Zur Reform der Finanzierung der Gesetzlichen Krankenversicherung“, expertise by the Scientific Advisory Board of the Federal Ministry of Economics and Technology, April 2010.
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