Handelsblatt Explains

Why Germany’s two-tier health insurance system is so complicated

health insurance cards germany
Source: DPA

Everybody loves to whine about healthcare. In Britain, the single-payer National Health Service is free but also overburdened. In the United States, the fragmented system of employer-sponsored, government-run and individual insurance is patchy, unaffordable and leaves many people without any coverage. In Germany, too, people complain. But that is probably more because they’re German than because the system is bad.

As an American living in Germany, I find this German hybrid healthcare system to be a breath of fresh air. The dozens of nonprofit public health insurers, bound by standard rates, make sure that everyone gets good coverage. And the auxiliary private insurers add a little free-market competition to keep things interesting. That said, the system is also incredibly complicated, especially for expats.

Why does Germany have such a complex two-tiered system of health insurance? The answer, as usual in Germany, is history. In this case, the system’s roots go back to the 19th century.

Starting in the mid-1800s, people in certain professions banded together in mutual societies to insure themselves against medical disasters. These were typically educated and higher-income professionals, such as municipal bureaucrats, teachers or clergy. Debeka, one of the biggest private health-insurance companies in Germany today, was founded in 1905 as a benefit for civil servants in the Rhine area. This was the tradition out of which today’s private insurance sector grew.

Starting in 1883, however, a separate and parallel system had been set up, mainly for the blue-collar working class created by the Industrial Revolution. Its author was Otto von Bismarck, the founding chancellor of the German Empire. Far from a socialist, von Bismarck was in fact so conservative that he wanted to mollify the proletariate and nip revolutionary movements in the bud. So he designed the first welfare state, starting with a health-insurance law.

This created the parallel public system — Germans call it gesetzlich, or “statutory” — that exists to this day. The new public health insurers, or “sickness funds,” were for the working man and the needy. They were and are regulated by the government but operated as individual non-profit companies, initially at a very local level. Many of those tiny local health insurers willingly joined forces to create regional funds, known today as AOK.

Those roots are still visible in the public health-insurance market today — 11 regional insurers and six professional-focused statutory insurers account for about 70 percent of the public health insurance market. The differences among the public health insurers are negligible, but the charitable reputation of the AOK lives on.

german health insurance market consolidation
germany's health insurance market, private, public

Public vs. private insurance

The most obvious difference between public and private health insurance is the monthly premium. For public insurance, that’s 14.6 percent of your monthly income (plus an additional premium 0.59 to 1.7 percent depending on the insurer), with your employer generally paying half of that, capped at about €690 per month for those making more than €53,100 annually. (If you’re unemployed or receiving certain social benefits, your public health insurance is taken care of.)

It’s the same percentage for basically everyone, with the idea that the young help cover the old, the well help cover the sick. Germans call this the solidarity principle. Your monthly premium covers basically everything — no deductible, few copays.

Private health insurance is the elite option — it’s more likely to cover homeopathy and will get you an appointment faster. And with private health insurance, you may well pay a lower monthly premium when you’re young, healthy and single. But it will increase as you age,  as your health risks rise and as you have children. It’s also worth noting that private health insurers aren’t required to cover preexisting conditions and can charge you more if you have a chronic illness.

Self-employed people and those making more than €59,400 per year are considered “not vulnerable” and eligible to go private. Private insurers invest excess savings in the capital market — currently sitting on a cool €250 billion — to help subsidize older people’s premiums.

The differences among Germany’s public health insurers are negligible. Unlike the United States, where health care costs vary wildly, Germany abides by a fee schedule that sets prices for every possible procedure. But doctors can charge private insurers more for the same procedures, so the privately insured are likely to get appointments much faster.

health insurance for expats private vs. public

German health care for expats

When you come to Germany and need to sort your health insurance, get advice. Switching from public to private health insurance is easy. Switching from one public health insurer to another is totally fine. But going from private to public is an ordeal.

There are only a few windows where you can make the switch from private to public: if you’ve just entered the country, when you get a job, if you become unemployed or if your income drops below a certain level. But if you are over 55, it is no longer possible to switch from private to public health insurance.

Getting health insurance when you arrive in Germany is a total Catch-22. You need proof of health insurance to apply for a visa. But you need a visa to get into public health insurance. So most non-EU expats, whose home insurances won’t count as adequate coverage in Germany, opt for private travelers’ insurance to tide them over.

For self-employed people, the high income percentage you pay for public health insurance can hurt. You might be persuaded to go private, especially if you are childless, healthy, making good money and only planning to stay in Germany for a few years. If you’re planning to stay for the long term, you have to be quite sure your income is going to remain high. As you age, your premiums can end up being an even higher percentage of your income than if you had public insurance, especially if you have children to add to your policy.

If you lose your job and receive unemployment benefits, the government will fund your public health insurance premium completely, or send you the employer’s half of the monthly private premium, up to €320 (which may not entirely cover it). But when you lose your job, you also gain the chance to switch from private to public insurance.

Being in the public system has some serious benefits, like sick pay after six weeks of being too ill to work, daily pay for taking care of a new baby or sick child, as well as long-term rehabilitation. Those perks cost extra for the privately insured.

doctor's office, germany, arztpraxis, health insurance
Are you covered? Source: DPA

Future health systems

In a turnaround from the past, the customer base of private insurers is getting older as the public system is attracting more young people. Most recent migrants to Germany, whether pursuing better jobs or fleeing crisis regions, have chosen to go public. “From this influx, the public health insurance system is in a much more demographically sustainable position,” AOK Association chief Martin Litsch said.

Experts agree that if Germany had to design a new health system from scratch today, it would be unified — no one would create this complicated chimera. But the SPD and left-leaning parties’ attempts to create a single-payer system in Germany has been perpetually stalled.

Proponents of the dual system say private patients already essentially subsidize the public system with its higher payments to doctors. Private insurance proponents also say free-market health insurance helps drive innovation. But it’s worth noting that the public health system is the one that actually funds research and testing for new medications and treatments.

Bringing in the high earners and civil servants currently privately insured into the public system would substantially increase its funds and possibly reduce premiums. But integrating the systems would be costly in itself. The fact is, the German system is working pretty well just as it is. Numbers from the OECD for 2016 show that just 2.6 percent of people in Germany skipped medical care because of the cost. In the United States it was a whopping 22.3 percent.

Handelsblatt reporter Peter Thelen contributed to this report. Grace Dobush is an editor with Handelsblatt Global in Berlin. To contact the author: grace.dobush@gmail.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!