Healthcare finance system in Germany

Germany spends a significant portion of its wealth on healthcare. Total health

expenditure in 2018 was €391 billion according to the Federal Statistics Office, which
provides the most recent available data on health expenditure which is equal to
11.7% of the GDP. It was 0.1 percentage higher than in 2017. Germany health
expenditure as a percentage of GDP has higher compare to other countries in WHO
European region.

The below graph represents the healthcare expenditure as a percentage of GDP in

Germany from 2000-2018. As we can observe from the graph that it continuously
increasing from 2011 to 2018.

Source of healthcare finance in Germany

SHI is the most significant source of funding for health care in Germany, serving 70
million individuals, or 85 per cent of the population, in 2012. PHI was taken out by
9.0 million individuals, or 11% of the population, with only 5% of them being public
servants (including former civil servants and their dependents) and the rest receiving
free government coverage and private insurance. In addition, 4% of the workforce
was supported by government-sponsored sector-specific services (military, people
on substitutional service, police, social welfare)

There are major three parts in healthcare finance. First is the collection of funds
which includes who pays for the healthcare systems. The second is the pooling of
funds which includes who will get the healthcare benefits and the third is the
budgeting/purchasing which includes who gets paid.

1. Collection of funds:

Contributions to SHI, which has 132 sickness funds (as of January 2014), are
Germany's main healthcare funding scheme. Contributions are received by sickness
funds and allocated to a Central Reallocation Pool. The Federal Insurance Authority
oversees this Pool, which was established in 2009. Sickness funds receive
donations directly from employers or government agencies and move them to the
Central Reallocation Pool; evasion is punishable. The sickness funds work on a pay-
as-you-go basis and are not allowed to run up any debts or deficits. They were free
to set their contribution rates until the end of 2008; in 2009 and 2010, the federal
government set a uniform contribution limit, and it became law in 2011. Sickness
funds must charge their insured a supplementary fee if their spending exceeds the
Central Reallocation Pool's allocations. There is no centralized pooling or risk
adjustment in place for the surcharge. Furthermore, since it is a flat fee, all members
of a sickness fund pay the same amount, regardless of their salary. A sickness fund
had to calculate the members' compensation if it was more than €8 per month
(between 2009 and 2010), to ensure that the surcharge did not exceed 1% of the
portion of their income subject to SHI contributions. The surcharge has not been
capped since 2011, and sickness funds will now set their rates. Sickness funds, on
the other hand, may refund a portion of their members' contributions if revenue
exceeds expenditure in a given year. In early 2011, there were only 13 sickness
funds that charged extra fees to their members. The applicable organization is only
legally obliged to provide financial assistance if a sickness fund's proper functioning
is jeopardized.

2. Pooling of funds:

A Central Reallocation Pool was formed in 2009 as part of the Act to Improve
Competition in SHI, reorganizing the mechanism for collecting and distributing SHI
contributions fundamentally. Until that date, sickness funds were raised and
distributed donations directly from covered members or their employers. The Federal
Insurance Authority's Central Reallocation Pool, on the other hand, collects SHI
contributions centrally and then distributes them to sickness funds based on a
morbidity-based risk-adjustment scheme. (In fact, individual sickness funds continue
to raise donations, which are then moved to the Central Reallocation Pool on the
same day.)

Since January 2009, the morbidity-based risk-adjustment scheme for SHI

contribution distributions has been in operation, marking another move forward in the
German SHI system's risk-adjustment evolution. Sex, age, and invalidity status were
used as risk adjusters in the first such risk-adjustment scheme implemented in
Germany in 1994. The new morbidity-based system, on the other hand, blends
gender and age with direct measures of morbidity.

3. Budgeting/Purchasing:

On a corporatist level, the specifics of service provision and payment are negotiated
and specified. The Federal Structure Contract (Bundesmantelvertrag) between the
Federal Association of SHI Physicians and the Federal Association of Sickness
Funds provides general guidelines at the federal level. On this basis, regional
collective contracts are negotiated (i.e., members of the sickness funds negotiate
regional contracts with regional associations of SHI physicians or dentists, with the
provider and the sickness funds usually not having a clear contractual relationship).
The SHI's preferred form of procuring outpatient care is by the conclusion of mutual
contracts. The scope of service and, in theory, payment for all providers in an area
are equal in this situation. Sickness funds, on the other hand, contract directly with
health care providers rather than going through their partnerships when completing
selective contracts. The government had agreed to enact exclusive selective
contracting for all specialist doctors in 2003, thus retaining collective contracting for
general practitioners. Because of physician opposition, those proposals were
eventually abandoned. Sickness funds that take part in integrated care models are
no longer required to enter into contractual agreements with regional organizations
of SHI physicians for services covered by the program.

Participants in the integrated care model contract are free to participate, but they
must agree to the physicians who are contract partners. The 2007 Act to Strengthen
Competition in SHI expanded the field of selective contracting. Both selective
contracts have the problem of having to change mutual contracts in terms of services
provided by selective contracts as well as compensation, which is challenging
considering that patients who engage in selective contracts have a higher morbidity
rate.